ALTERNATIVE

DISPUTE

RESOLUTION

DAVID PLANT

j

David W. PlantFish & Neave

Mr. Plant has practiced law in New York City since 1957 with Fish & Neavewhere he is a senior partIler. He holds degrees in engineering arid law from Cornell University.He is a member ofthe bars ofNew York, the United States Supreme Court, various United Statesfederal courts and the United States Patent and Trademark Office. He is a Fellow oftheChartered Institute ofArbitrators and is listed in The Best Lawyers In America.

Mr. Plant's practice has focussed on trials and appeals in federal courts,proceedings before the lTC, FTC and USPTO, and various ADR processes. He has served asmanaging partner ofFish & Neave, chair and director ofvarious professional committees andorganizations, and on various ADR panels in both court-annexed and voluntary procedures in theUnited States and in Europe. More particularly, he has served as mediator of technology, IP andother disputes, as arbitrator in ICC, Stockholm, AAA, court-annexed and ad hoc arbitrations oftechnology, IP and other disputes, and as special master in U.S. patent litigation.

Mr. Plant has written, spoken and conducted workshops and seminars on ADR inthe United States, Canada, Europe, Japan, Mrica and South America. Inter alia, he is the editorof the AlPLA Guide To ADR For IP Disputes (1995) and author of"Arbitration and ArbitrationClauses", Intellectual Property Counseling and Litigation (Matthew Bender 1988 (periodicallyrevised)).

Mr. Plant was organizer, advisor to and participant in the Shanghai Conference onInternational Technology (February 1984) and ensuing conferences in Tianjin and Beijing (March1984). He serves on the World Intellectual Property Organization's Arbitration ConsultativeCommission and has served on the ICC's working group re arbitration ofintellectual propertydisputes.

Franklin Pierce L.C.

Notes Re Alternative Dispute ResolutionAnd IP Licensing

David W. PlantFish & Neave

1251 Avenue of the AmericasNew York, New York 10020

July 1998

I. OVERVIEW

A. What Is ADR?

B. What Are Its Forms?

C. Where Is ADR Appli~able?

D. What Are Its Advantages And Disadvantages?

E. what Should Parties To An IP Contract Consider AndProvide For?

F. Whither ADR?

II. WHAT IS ADR?

Alternative Dispute Resolution embraces all forms ofdispute resolution other than conventional litigation.

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III. WHAT ARE ADR's FORMS?

A. ADR encompasses an infinite number of forms. Itis helpful to consider three generic categories.

B. A(i~Udicative Forms.

1. A conventionalarbitration.

udicative form is binding

2. Non-binding arbitration may also be anadjudicative process.

3. Another form is the use of a Court-appointedSpecial Master.

4. In some jurisdictions, "Rent-a-Judge"procedures are available.

5. A 3d party renders or imposes on thecontestants a decision -- based on (a) issuesformally defined, (b) sophisticatedpositions, and (c) evidenceanci legalauthorities.

C. Non-adjudicative Forms.

1. Negotiation.

2. Mediation.

3. Mini-trial.

4. Early Neutral Evaluation.

5. Summary Jury Trial.

6. Each of these is directed toenabling·theparties themselves to solve their problems.Not limited by formal pleadings, carefullyadduced evidence or legal authorities.

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D. Hybrid Forms.

1. Hybrid forms stretch the spectrum of forms toinfinity.

2. Negotiation, followed by mediation, followedby "arbitration: is·· becoming popular.

3. Mediation: followed by last offer arbitrationis effective.

4. Early neutral evaluation coupled withmediation ha~ worked.

5. Ex parte, non-binding arbitration: hassucceeded where the parties do not want toexchange sensitive information.

6. Creativity is the key. Must fit the forum tothe fuss.

E. More thorough discussions and elaborationsregarding the forms of ADR appear in, inter alia -

1. Plant, "Overview of ADR Procedures", AIPLAAlternative Dispute Resolution Guide, 1995p. 3. (A copy of this chapter appears atAppendix A to these notes.)

2. Arnold, "A Better Mousetrap: ADR" , LesNouvelles, Vol. XXX, No.1, March 1995, p.31.

3. Arnold, Patent Alternative Dispute Handbook,Clark, Boardman, Callaghan 1991.

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IV. WHERE IS ADR APPLICABLE?

A. ADR is applicable to almost any intellectualproperty dispute -- even where injunctive reliefseems necessary.

B... . .ADRmay not be applicable where ...,-

a. A counterfeiter must be nipped in thebud.

b. A trade secret must be preserved.

c. Legal precedent is needed.

d. EMOTIONS are out of control -- ADR maybe applicable but extraordinarilydifficult to apply.

C. Specific examples will be discussed. These willinclude:

1. Binding arbitration

2. Non-binding arbitration

3. Mini-trial

4. Mediation

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V. WHAT ARE ADR's ADVANTAGES AND DISADVANTAGES?

A. Advantages.

1. The parties create and control the solutiontheir problem. In any ADR proceeding

other than a binding adjudicative procedure,the solution is not imposed by a third personwho is bound by narrow pleadings. But evenin binding arbitration, parties' agreement reprocess controls the process.

2. The parties preserve old, or create new,business relationships, or both.

3. Often time and money are saved.

4. Cultural differences may be betteraccommodated, or reconciled.

B. Disadvantages.

1. If poorly constructed or managed, ADR may becounterproductive.

2. Badly planned and managed ADR may inflateexpenditure of time and money and may yieldunsatisfactory substantive results.

3. May be undermined by party not acting in goodfaith. But even then, other party (or bothparties) may acquire better understanding ofissues, risks, rewards.

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VI. WHAT SHOULD PARTIES TO AN IP CONTRACTCONSIDER AND PROVIDE FOR?

Some Key Issues

1st Arbitration

2d Mediation

A. Arbitration.

1. Arbitrability and E~forceability

a. U.S.

(1) Virtually all IP issues arearbitrable.

(2) Query increased damages.

(3) Plant "Intellectual Property:Arbitrating Disputes in the UnitedStates", Dispute Resolution Journalof the American ArbitrationAssociation, July-September 1995,p. 8 (A copy of this paper appearsas Appendix B to these notes.)

b. Elsewhere.

(l) Important to .understand local laws,local public policy and the NewYork Convention.*

* Ar~. if.2. of the 1958 Convention On The Recognition AndEnforcement Of Foreign Arbitral Awards (the "New YorkConvention") provides:

"Recognition and enforcement of an arbitral award mayalso be. refused if the competent authority in thecountry'where recognition and enforc~ment is soughtfinds that:

"(a) the subject matter ofcapable of settlement

6

the difference is notby arbitration under

(continued ... )

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(2) Important to distinguish between(a) government granted orregistered rights and (b) privaterights.

(3) consider an arbitration clause thatfocuses on --

(a) Private rights

(b) International Commerce

(c) Arbitrator may consider [IPissue] but is not empowered todeclare whether IP valid ornot valid, enforceable or notenforceable, etc.

(d) Neither the award nor anystatement by the arbitratorshall be regarded as adeclaration of validity orinvalidity, etc.

(e) Award may determine what actsone party mayor may notundertake vis-a-vis any otherparty, but not re a non-party.

(4) See discussion in Plant, "Draftingfor Confidentiality, Arbitrabilityand Enforceability in IntellectualProperty Agreements," ALI-ABACourse Materials Journal, June1997, p. 51 (A copy of this articleappears at Appendix C.)

* ( ... continUEid)the law of that country; or

"(b) the recognition or enforcement of the awardwould be contrary to the public policy ofthat country."

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2. Arbitration provisions to consider.*

a. Administered v. ad hoc arbitration.

b. Issues to be resolved.

(2) Related issues.

c. Arbitrator(s).

(1) Number.

(2) Qualifications.

(3) Selection process.

(4) Party-appointed.

(a) interview process

(b) neutrality

d. Schedule; commitment

e. Venue.

(1) Neutrality.

(a) transnational disputes

(b) cultural differences

(2) Availability of witnesses anddocuments.

* These and other provisions are discussed in variousplaces in the literature, e.g., Plant, "Arbitration AndIntellectual Property Disputes", Euromoney Publications PLC,Managing Intellectual Property, June 1996 (a copy of thispaper appears at Appendix D); Arnold, "A Better Mousetrap:ADR", supra; Plant, "Arbitration And. Arbitration Clauses,"Intellectual Property Counselling And Litigation, Vol. 2,Ch. 20, Matthew Bender, 199'1; CPR, Arbitration, 1994; CPR,Model ADR Procedures, "Alternative Dispute Resolution InTechnology Disputes," 1993.

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f. Discovery.

g. Confidentiality.

(1) During proceeding.

a

(b) Parties' agreement

(c) Award enforced as ProtectiveOrder

(2) Post-proceeding.

(a) Enforcement of arbitrationaward

(b) § 294 (d) & (e)

h. Remedies.

(1) Monetary.

(a) Compensatory.

(b) Punitive.

(c) Currency

(2) Other.

(a) Injunction.

(b) Specific performance.

(c) Provisional.

(i) Emergency relief an issuein IP matters.

(ii) Most arbitraladministrativeorganizations cannotconstitute a panel on therequired short notice

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(iii) U.S.: ancillary aid ofCourt

(iv) WIPO: contemplating "24hour" service

j. Governing law.

(1) Arbitral.

(2) Substantive.

k. Language.

1. Form of award.

(1) Win/lose.

(2) Reasoned.

(a) Collateral estoppel and resjudicata

(b) § 294(c) re modification

(c) Motions to vacate or modify

(d) Road map

m. Recourse.

(1) Enforceability.

(2) Challenge.

(3) Modification.

3. U.S. arbitration law.

a. U.S. Arbitration Act, 9 U.S.C. §§ 1 etseq.

b. Uniform Arbitration Act enacted in alarge majority of states.

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*

**

c. State statutes re internationalarbitration.

d. 35 U.S.C. § 294.*

(1 ) § 294 (a) .

(2 ) § 294 (b) .

(3 ) § 294(c}.

(4 ) § 294 (d) and (e) .

e. 35 U.S.C. § l35(d) .**

4 . Various rules.***

a. AAA.

(I) Patent.

(2) Commercial.

(3) Large, complex.

(4) International.

b. CPR.

(1) Rules For Non-AdministeredArbitration Of Patent And TradeSecret Disputes.

(2) Model Agreement For Ex ParteAdjudication of Trade SecretMisappropriation And/Or PatentDisputes.

(3) Non-Administered Arbitration RulesAnd Commentary.

35 U.S.C. § 294 is reproduced in Appendix E.

35 U.S.C. § l35(d) is reproduced in Appendix F.

*** Specimens of some rules will be available at thelecture.

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(4) Model Procedure For Mediation Of aBusiness Dispute.

(5) Model Minitrial Procedure.

c. WIPO.

(1) Mediation Rules.

(2) Arbitration Rules.

(3) Expedited Arbitration Rules.

(4) 24 hour rules under consideration.

d. ICC.

(1) Rules of Conciliation.

(2) Rules of Arbitration.

Revised effective January 1, 1998

(3) Pre-Arbitral Referral Procedure.

Not adequate for emergency relief

e. LCIA

(1) Arbitration Under LCIA Rules.

Under revision

(2) Arbitration Under UNCITRAL Rules.

(3) Conciliation under UNCITRAL Rules.

f. UNCITRAL

(1) Model law adopted in variouscountries.

(2) Non-administered arbitration.

g. U.S. Courts.

(4) Each U.S. District Court has ADRrules or practices.

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(5) Vary from court to court, e.g.

(a) SDNY: rules re mediation.

(b) EDNY: rules re arbitration,mediation, early neutralevaluation.

(c) DNH: ADR considered atpreliminary pretrialconference; various ADRprocedures available. Notformalized in local rules.

(d) See tabulation in AIPLA ADRGuide, 1995.

B. Mediation

1. u.S. v. elsewhere.

a. Mediation.

b. Conciliation.

c. Mini-trial.

2. Six phases.

a. Getting to the table.

b. Preparation.

c. Initial sessions.

(1) Joint session.

(2) Private caucus.

d. Subsequent sessions.

e . The" End Game".

f. Post-mediation.

3. A more detailed outline appears at Appendix Gto these notes.

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VII. WHITHER ADR?

A. In the United States, the impetus to apply ADRstems from many quarters --

~. Courts.

2. Clients.

3. Legislation.

4. Professional responsibility.

B. Elsewhere in the world, the impetus varies

1. Arbitration in international commercialdisputes.

2. Conciliation in Asia.

3. Mediation in Europe.

C. Disputants will increasingly enjoy the b.enefits ofADR if it is understood, constructed and· utilizedintelligently. /

\D. ADR will wither if not understood, constructed or

utilized intelligently.

E. Many matters must be litigated.

1. But statistics show more than 90%, maybe morethan 95%, of IP lawsuits are settled beforetrial.

2. With this fact, together with the high costof litigation in terms of $, emotion, timeand other resources, it makes eminent senseto consider ADR earlier rather than later,and to encourage the parties to put theirdispute behind them and get on with theircustomary businesses.

3. As counsel we must be informed AND we must beready and able to recommend and to utilizeADR.

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OVERVIEW OF ADR·PROCEDURES

I. INTRODUCTION

Altel'l\lltiye Dispute Resolution (ADR) teehniquesllenerallY fall into twocategories: (1) adjudicative and (2) non:adjudicative. These are not crispcategories,betallsc

often the process of finding a solution toa problem will embrace both categories --typically,when the process flows from a non-adjudicative state to an adjudicative state or vice versa ­resulting in a hybrid process.

This short overview touches on some issues that deserve attention in respect ofa few specific ADR techniques.

II. ADJUDICATIVE PROCESSES

A. . ArbiJration

. Among adjudicative ADR techniques, arbitration usually rises to the~ of thelist. For many years, arbitration has been utilized in the United States to resolve licensingdisputes concerning intellectual property rights. Of course, since 1983, binding arbitration ofall issues relating to United States patents, under appropriate circumstances, has been sanctionedunder 3S U.S.C. § 294. Arbitration of other intellectual property issues, including validity aDdenforceability, seems to be generally sanctioned by the judiciary, absent specific contractual orlegislative restrictions to the contrary.' .

Arbitration may be binding or non-binding. (Non-binding arbitration, whileadjudicative insofar as the specific arbitration proceeding is concerned, may be part of a largernon-adjudicative process.) Arbitration may be the result of an agreement between the parties,or of an initiative by a court. Arbitration may be.administered by. an institution and subject tothe institution's rules:, or it may be administered by the parties subject to rules the partiescreate, or it may reflect elements of both. Even in administered arbitrations, it is not unusualfor. the· parties and the arbitrator to agree to depart from the administrative institution'spublished rules.

An arbitrator's decisiun is embodied in an award. If a party is concerned aboutcollateral estoppel effects of an award or other adverse commercial effects (e.g., providing aroad map as to how not to infringe), a reasoned award may not be desired. Abo, colivenuorlilwisdom suggests that a reasoned award may be .nore susceptible to modification or vacation bya court than a bare "win-lose" award.

Because arbitration is usually the product of an agreement between the parties,the parties can set the course of the proceedings, specify issues; fIX time limits and define thescope of the arbitrator's aut1lority. A full understanding by counsel and client, and thearbitrator, of these dimensions and their implications is necessary to the efficient, expeditiousand equitable use of arbitration.

The right to appeal an arbitration award is limited by legislation and by judicialopinion'. That right may be modified by the parties, e.g., enlarged so that the Court perfonnsa more typical role in ascertaining whether findings of fact are clearly erroneous or conclusionsof law are correct.'

I

APPENDIX A

Many of us on many occasions have urged that a fundamental requisite ofarbitration is a seasoned arbitrator, available when needed, willing and able to move theproceedings forward, and dedicated to efficiency and fairness. Arbitration has sometimesreceived bad press, occasionally l.;,;;ause an arbitrator appeared to split the baby (perhaps anexaggerated impression in many cases). But a more severe c~J.wback may be an arbitrator'spennitting the pt'lX""Cding to expand and to absorb as much time, energy and money as thecomplex litigation it was expected to supplant (a matter of substantialconcemand severeconsequence). Fortunately, this result is not at all inevitable or even likely if the arbitrator isselected with care.

The disclosure requirements of 35 U.S.C. § 294(d) and (e) have sometimes been v'invoked as discouraging the use of arbitration to resolve patent disputes. This does. not seementirely sound in light of the need to file in court an arbitration award whenever the award ischallenged or judgment is sought on the award.

Arbitration has worked, and efficiently and effectivelyso,in intellectual PII>pe.1ydisputes. It has been utilized in lieu of litigation and in lieu of Patent Office adjudication. Itcan continue to work, especially ifcounsel and clients recognize that arbitration can be tailoredto fit their specific needs.

B. Other Techniques

A neutral fact finder or a neutral legal expert may be engaged to rule on aspecific issue. As with ;,n arbitrator, the terms and conditions on which the neutral's won: isundertaken are negotiated by the parties and the neutral.

Also, a private trial ("rent-a-judge") may be agrecdupon. Here, a~judge" (oftena former jurist) presides and judgment is ultimately entered in a. court. Where. sanctioned bylocallegislation,the private judgment may be subjecuoappealin the local court system.

Another technique is a proceeding before a special master appointed.by a courtpursuant to Rule 53, F.R.Civ.P. Substantial intellectual property disputes have been presidedover by special masters.

1lI. NON-ADJUDICATIVE PROCESSES

Non-adjUdicative processes typically focus on aiding the parties themselves to finda solution. to a \lfT.'Dlem. Flexibility; participation' and control by the panies themselves arehallmarks of such processes. Importantly, the opportunity to preserve or to create ·businessrelationships is presented by non-adjudicative processes.

Among the non-adjudicative processes employed in intellectual property disputesare mediation, mini-trial, early neutral evaluation, summary jury trial, and many variants onthese themes. . Each of these is a form of facilitated negotiation in which .the parties participatedirectly. (Of course negotiation itself is a non-adjUdicative dispute resolution process.Negotiation per se is not explored in depth in this Guide.)

Each of the four processes we discuss here has been used so often that counseland clients need not reinvent the wheel. Many forms of model rules andaetuaLagreementshave been drafted and disseminated.

2

A. Mediation

In mediation, a neuttal mediator facilitates communication, negotiation andresolution by the parties. The mediator attempts to help the parties understand their own andtheir adve~::ll)"s real needs and real interests, articulate those needs and interests, and createamlJtuallYben~cial fonrtulafor meeting. the needs and interests.

The mediator may express a view on the merits if requested by the parties.However, many practitioners are concerned that~ doinLthe mediator may appear to havecompromised the mediator's ability to facilitate problem SOfving in an even-handed manner.

Als9, the mediator may caucus ;Jrivately with each party .and shuttle between theparties. ~so doing, it is imperativ~ that the mediator Prese:rve in confidence any informationlearned from a party which the party does not want disclosed. Because some practitioners viewprivate caucuses as creating concern in the absent party as to whether the mediator is somehowbeing tainted by the adverse party's private remarks, some mediators attempt to conduct theentire mediation without private caucuses, i.e. with all substantive communications between themediator and a party occurring in the presence of all parties.

It is critically important that a representative of each party with authority to settle(i.e. an individual party or an officer of a corporation) be present throughout the .Illediation.This includes, importantly, interested but unnamed parties, such as an insurance carrier or alicensee. Mediation will hardly ever be successful if this condition is .not sa$fied.

'·f .. .. '

Finally, the background, training and experience of a mediator is important.Mediators are not born. Iitigators and judges may be skilled at litigating and judging, butnot always at mediating. Training is a virtual necessity to enable a mediator to perfonncolllpetently. The mediation Process .. is so different and so fluid in comparison with aDadjudicative process, the mediator must have training so as to be fully prepared to assist theparties.

Mediation has worked effectively in resolving intellectual property disputes. Ithas worked in large, complex cases and in smaller cases. It has worked early in the life of adispute as well as later in full-blown litig,ation. It appears to be burgeoning as a well acceptedalternative to full-time, all-out litigation.

B. Miniiriai

Minitrials are well-mown in the intellectual property field. Indeed, the veryfiIStminitrial in the United States is widely ~arded has having occurred in 1978 in a patentinfringement dispute between TRW and Tel~t.

A minitrial is a kind of facilitated negotiation in which a panel, comprising.partyrepresentatives authorized to settle and (usually) a neutral, hears arguments by each party'scounsel and immediately confers in an attempt to settle the matter. The settlement discussionsare facilitated by the neuttal wholiCts very much like a mediator. The presence of a neutralis usually a plus, if not a sine qua non. The p~nceof authorized representatives of allinterested parties is essential.

3

f

I

C. Early Neutral Evalualion

Early neutral evaluation is usually a court-annexed procedure. Invented in theNorthern District of california, this procedure has enjoyed commercial success in va";~,,· othercourts.

Typically, after the pleadings are closed, a respected neutral hears argument bycounsel, attempts to assist the parties in negotiating a settlement, renders an opinion on themerits, and in the absence of settlement, assists in working out a pretrial schedule. Likemediation and rninitrials, it is imperative that a representative from each interested pany withauthority to settle attend early neutral evaluation sessions.

Early neutral evaluation ,has been sUcces~ful Qothin settling intellectual propertydi~utes and in assisting parties and C()urts in developing' and implementing discoveryschedules.'

D. Sumnuuy Jury Trial

Summary jury trials also have been uSeful in assisting parties to intellectualproperty actions ,resolve their differences. Judge Thomas Lambl"()s in" the Northern District ofOhio is credited with originating this process. It has been used hulldreds of times in that districtand elsewhere. ' ' ,

The same cast of characters as in a minitrial participates --plus' a judge and anempaneled jury. Counsel argue to th,e jury, and the jUry delibera~ and renders a verdict, allin a short time (e.g. a day). Immediately upon hearing the j llry'S verdict, the parties C()nferwith the •objective, of resolving the dUpute.

Summary jury trials often occur on theeYcofa long jury trialin a large,complex case.

lV. END NOTES

A. Hybrid Processes

, Many combinations of the foregoing processes, and variants of the processes,have been utilized in resoiving inteiiecruai property di~uteS. Parties have provided fornegotiation, followed by mediation, followed by arbitration. Parties have agreed to mediation,and having mediated to close to a solution, have agreed to put the remaining issues to anarbitrator.

The literature is rich, as is the experience of some practitioners, with creativetechniques for encouraging and enabling parties to solve their problems.'

B. Getting To The Table

'Persuading parties to talk has been a recurring issue. Apre-di~ute ADRciauschas posed little problem. A post-di~ute suggestion of ADR may alice have posed a far moreserious problem. But that day is almost over.

No longer does a proposal of ADR by one party to another signal weakness or (lack of confidence. ADR is too well-known. Hundreds of corporations have signed the CPR

4

corporate pledge. Hundreds of law finns have signed the CPR law finn pledge. Professionalassociations encourage, if not compel, counsel to be familiar with and to consider ADR. EveryUnited States District Court provides for some fonn of ADR in its rules or its procedures'. Itis simply a matter of fundamental professional responsibility for counsel to consider ,'':'~

without fear ofwaiving the white flag and without inferring an adversary who proposes ADRis waiving that flag.

absent a' cou~Oo;j~,!thet~~~~fo~ ~~:~n~~~p~ha~ ~n:~se~trp:O~~respol)sibility. to explore the prospects ofADR. .Management can call management,. "eca"'Cboth know the cost of litigation, or because both know the court will encourage, if not order,ADR. These communications can occur at any time - e.g. during early negotiations, when acomplaint is filed, on the eve of arguing a motion, on the =ve of trial, during trial or after trial.

Of course, if it is a bet-rour-business case, emotions are ruMing high, aprecedent is needed, a licensing program IS to be protected, truly irreparable harm is about tooccur, or strategic litigation is otherwise an imperative, the parties may never get to the table.Some issues must be litigated. ADR.will not solve every problem betWeen all parties.

C. Finding A NewraJ

The importance of engaging a competent neutral shines through the fabric ofeachADR P!'OCCSS. How to find.such a neutral is thus a critical question. .

At the outset the parties must understand the issues on which they disagree andmust become infonned as to the pros and cons of various procedures (including litigation) forresolving those issues. If an adjudicative process other than litigation is settled on, one kindof neutral should be considered. If a non-adjudicative process is chosen, another kind of neutralshould be considered. The adjudicator is the deciSionmaker. In contrast, a mediator is afacilitator of decisions made by the parties, not by the mediator.

Training and experience are important in all cases. Although it may be (and hasbeen) possible for a litigating attorney or a retired judge to serve effectively as an arbitratorwithout training, it is imperative that a mediator or other facilitator have been trained.

Various organizations, e.g. AAA, CPR and WIPO, maintain rosters of potentialneutrals. The organizauons cited keep themselves infonned as to the background andexperience of each pe~n on their rosters. It is usually salutary for a party and its counsel tocommunicate with more than one such organization as to the people that organizlltion wouldsuggest as qualified. It is always important for client and counsel to investigate thoroughly thetraining and experience of a potential candidate.

Also, it is imperative that each potential neutral commit himself or herself todischarging the duties 'and responsibilities of the engagement in timely fashion.

D. Whither ADR And InleUectual Property?

Since the 1978 TRW - Telecredit minitrial in our field, ADR has been tentati~~explored here and skeptically utilized there, until perhaps the last half dozen years during w .many fonns of ADR have been enthusiastically explored and confidently utilized. The signsof the times suggest even wider and more creative applications of ADR. We should all be fullyprepared.~

5

End Notes

1. PiaIIt••Arbitrabilily of InleU"cwol Property luuoa in the United SlsIolI. ·Wo,ldwi<U 1"0'1Im .on tIu A,bilrGbJJ/ly qfl.ulUcllUII Prop.", DUpIllU·, W1PO, 1994.

2. E.g.• AM PalcntArbillation Ruleo. AM Commercial Arbitration Ruleo. MA Supplcmonl&ty Procedu.... ForLarge, Complex eu...WIPOArbitrolion Rul... ICC Ruleo of Conciliolion And Arbillation. .'t.II of thoaeRul.. "'"reprod~ in~ Appeadix to this GIliiU. In oddilion to the many _ of ruleo jUlt mcn1ioncd. CPR InIIilute for [)iopureRCIOlution baa formulalcd modclruleo for ubitroting technology dilpUta. By ...y ofcumplc. CPR Rub For !'Ion­Aclminislcnld Arbiln1ion Of Polcn1 And Trade Secret Dilputa arc reproduced in the Appcndix. In conllUt to~MAand othen. CPR _ not.adminiIlA:r orililralio'" con!lllClCd punuant to ito. mode/ruleo.. CPR _. ho~cr....iIl puIiain. f'1""uJ.dingADR plOCOd........ oclccling newala. and the lib. Acomporilon of AM Polcn1 Arbilft!ion Ru~ and.CPRRub For Noft-Admini"ct'Od Arbitrolion con be found in plant, "Binding ArbillationOf U.S. Potcnll·. JoMTlfDl OfllIl.nuuiolltJl ArbilrllliDn. Vol. 10. No.3. p. 79 (1993).

3.•'. .' Plant, •Arbitrolion and Arbitrolion <::1&....... llIl.lUcllUII Propmy C.olUU.llbIg and UligllliDn. Mam-Ilcnda- okCo. (1991). p. 20-1 (~y being reviled).

4. Fils tl Cablts D'AcUI d. Lens v. Midland Mtlo/s COIp.• 584 F.Supp. 240 (S.D.N.Y. 1984).

5. Many orpniz"iona hove formulalcd lerms and conditio... for mediation. e.g. CPR Model Procedurc forMediation of Buoinao Dilputa. MA Commercial Mediation Ruleo. W1PO Mediation Ruleo. All of lhcIc are reproducedin the Appcn!Iix. .

6. Sec Kcnnclh Adamo'. and Deborah Rodcwig'.lIbulation of ADR upcc:U of the rul.. of the 94 United SlIlCaDistrict COUN appearing in the Appendix.

7. ·A~ bibliollIlIphy of informative boolaandhandboola foUo...:

MA. 1M 111lnJll1liolvJ/ ArbilnJdoft 1'11(1993),ABA. C-.r:itJl ArbilrlIliDnfo' thll99Clf (1991),Arnold. 1'_.A!Innaliw Dup"'e Ruo1Mliotl HONibooI; (1991).Brazil. EJftCliY.App~ 10 s.alnMlIl: A HlJIl<iboolcfo, Lawym and/lldg.s (1988).CPR Lcpl Propam. ADR aNi tIu Co,.". (1987).CPR Lcpl Propam. COIflainiIlg Ltpi Cow (1988).CPRLcpl Program. ModtlADR Pr<J«dMTu -A".,lUiv. Dupllle Ruollllionln T.chnology Dup"''' (1993).F"mkc1IlCin. ADR In T'adtrrr4rk" Unfmr Competilion Duplllu (11/904).FiI~. Ur)'. Gtaillg To r.. (2d ed, 1991).GalIlln. R.pr...lIliIIg Clitnu In MtdiDriDn (1994).Goldberg, Sander. Rogen. Dup",e Ruollllion (992).Henry, Lieberman•. Th. Manag., 's GIliiU To R.solving Legal Disp",ts (985).H;:;::;-";g;. C';".;'"5;o;~ A;b;'7""'~;; .. H.:;;;:!R~-.:n 99l}.MacnciI. Spc" :, Stiponowich, Ftdt,a./ A,bilrllliDn Lew (1994).NationaiAOR Insli1ulC fo, Fcdcra1Judgc:s.Jlldg.:S Dtskbooi;OnCoIUlADR(l993).Redfem. HUDlCt•LJJw and Pr""lice ofIIIl'nuuiolltJl Comm.rciDl A,bilrtUion (1991).Ragen. McEwen. MtdWipn (1989).Ury, Brolt. Goldbcrt. Gelling DIspIlJts Ruolvtd (1993),Ury, Gtlling ftJSl No: Ntgo_g With D/ffi<:MIl f.oplt (1991),W"l1kinaon. DortOVOII LeulUe NtwID1l " Irvint ADR Pr""lice Book (1990, 1992 Suppl,)

A more =ensi.., bibllolllllphy appean in the AJ'P"l1'Iix.

8. Sec n.6. !!!IlI!.

6

II11TELLECTU~LPROPERTY

I" v·

"'. "" J'... . ~

",

8 JULY 1995

r\;j5·· ', .. ': "'" ...

. . .,- .

APPENDIX B

In the absence of contract language to the contrary, all intellectualproperty issues appear to be the proper subject of bind:ng arbitration inthe United States.

This article will discuss such subjects as patents, cop\Tights, trade­marks and federal antitrust and securities laws pertaining to theseissues.

Lega/. ~istory is replete with illustrations of ho.w the ello..,utwnof the modern-day system ofarbitration ofcommercial andlabor disputes was fTlet 'vith resistance by the court system.

Arbitration in its application to intellectual property issues also fol­lowed a long and difficult road to acceptanc~;bythe courts, says theauthor. That has, for the most part, changecL.tyow,hesays, "allintellectual property issues appear to be the proper.subjet;t of ~ind­ing ariJitration. " This is not to assert that there are no substantIVeintellectual property policy issues remaining to be addressed". ofcourse. Matters of arbitrabiliry remain open to interpretation by thecourts. though careful tailoring of the terms of arbitration can domuch to clarify any controversy and move disputesswiftly to resolu­tion.

ByDavid Pla!lt .

'iWe authd;'isth~ ~hair/nar, of

theADR Cornmitree:i?' theAm.erican Inte/lectualPropertyLaw Association and a partnerat the New York firm of Fish &Neilve. This article is an up·dated and revised version of alonger paper presented allheWorldwide Forum on theArbitration of InteUectualProperty Disputes, held inGeneva. '

,ldillil fLlr brt'~l(h or l..nntr~lct would bt.'brought in Hal,'. The District Court citedSe(tI~)n2~~ in' it.'jecting pl,lintiff's"con;;'tention that patent infringment dd.tm~

mal' be heard onlv bv C.s. district co:!rts.'. The Court o(Appeals for the Federal

Circuit appears to favor arbitration, ingeneral. In /11 n' Medical Engiu'!eril1gCorporation,' the court of appeals uphelda district court order staying a patentinfringement:action in favor of arbitra~

tion. Earlier in Rholle-Palliellc SpecialtiesChimiques v. SCM Carp..' the court ofappeals construed an arbitration clause ina patent license agreement to includeissues as to the scope of the claIms of the

'licensed patent as well asin'fringemen~

issues."l In Rhone-POll/ene, the Court atAppeals invoked Mitsllbi5lri Motors v.Soler CirrI/51 'r-PIi/II/()lIth,' to the effect thatthe" 'intentions[oi the parties) are gener­ouslv construed as to issues of a. ~.ilrabili­tv.' '~J(J

. However, the Court oi Appeals forthe Federal Circuit has refused to permitarbitration to supersede the jurisdictionof the U.S. International Trad< Com­mission (ITO 0,"," intellectual propertyissues arising in, 19 U.5.c. § 1337(a) pro­ceeding." The ITC complaint was bacodon alleged misappropriation of trade~ecrets, trademark infringement and falserepresentations as to source. An fTCAdministrative Law Judge had terminat­ed the proceeding on the ground of (I) an,lrbitltltion c1ause.:~ (2) a pre"ious fTCdecision termin,1ring a proce,eding in lightnfan arbitration ,lgreemenL and (3) a fed­eral distriCt court decision that Fane:!

Patent Arbitration

Until J 983, 1).5. courts generallyr~fused toprder binding arbitration. ofissues as. to patent validity and enforce­ability. Such patent law issues were saidto be "inappropriate for arbitration pro­ceedings and should be decided by acourt of law, given the great public inter­est in challenging invalid patents.'"However, with the enactmentpf 35 U.5.c.§ 294 (effective February 27, 1983), thearbitrability of patent disputes underU.s.law is no longer in question on thisground. Voluntary, binding arbitration ofpatent validity, enforceability an~

infringement;s expressly proVided for inSectic, 294.

Similar/v, with the addition ofSubsection (d) to 35 U.s.c. § 135 in 1984,parties to a patent interference may also"determine such contest or any aspectthereof by [binding! arbitration." Section135{d) reserves to the Commissioner ofPatents and Trademarks the right todetermine patentability.

Section 294(b) provides illter alia thatall patent defenses under 35 :.:.<:.c. § 282"shall be considered by the arbitrator. ifraised by any party to the proceeding.'"Express inclusion of these defenses inSection 294 has foreclosed anI' seriousquestion as to the scope of patent iss~,esproperlv subject to binding arbitration. Inshort. \'irtuaJlv every defense to a claimunder ,1 U.s. p<ltent may be the subject ofbinding .1rbitratioll under Section 29-1-.

These ddenses include issues ,lS totitle, ,15 \\"e11 ('IS \",lliditv and enforceabili­ty, including unenforceability issuesbased on patent misuse or other antitrustgrounds. As for title, in Sc:tlll-Gmphic:::.. htC,", Pht1f(Hlllltrix Corporatioll,l the districtcourt noted, without reservatioR or othercomment, that it \vas "likelvthat theCaliforni~l arbitrators, while~iddressing

the ,·"Iidit\" "nd scope of the 1987,-\greement. will ~11so ~lddress whetherthere has been a transfer of rights to uneor ml.Jre d~lim~ of the patent b!' virtue ofthl' ,lgn.:'ement."

l'nterestingl!', Section 29-1,\,;<1sinn)ked In ~Vllrlll'r ( .... 5;('/I:>t'll etl. ".

~,lll'll"::I1/I/l Trllll:>krilJl.~ An e:"'clusin.'liCl'ns'ing ,lgrt't.'ment pnH'ided that an~'

DISPUTE RESOLUTION JOURNAL 9

Commi,:sion can consider remedie~

ord~red l"yan arbitral tribunal.:'·A similar situation 111<1\' obtain h·ith

the Cnited States Feller., I Tr.,dl'ClH111nisc;ion (fTCI, th...: dt.mwstK .1I1c1lo~

t,) the lTe. The FTC i, emp,)\\"ered an:1directed b~' 13 C.5,C, § ..J3<.lH21 to pre\'entthL' t/:,e o{ "unf.lir metlwds tlf (t.'01petitiol1III l\r .1_t"t"ecting comJllt?r~e.~_I~~_,~,ni'liT.~)_rdl'(l'F,tl,·t? acts orprclctices in or affecting(OmOlt...'rce.'· 15 L'.s,C, ~..J5Cl')·relluires ,1l1

ifl\·e5ti~cltit.ln b\' thl'" FTC where "theCt)mmj~sionshelli h,1\'l'" re,l~on to believe"there is d \'ioJation or where it "shilllappear to [lle C(ll1lmission that ,1 proceed­ingby it " would be to the interest ofthe public ...." In the event the FTC doesinitiate an investigation. 15 U.s,C, § -15(.1)pn",ides th"t (1, the FTC ,tl~1I issue "ndsen'e ,1 complaint, ;lnd (2) the personch"rged ;III1/1h""e the right to appear "ndshow cause whv an order should not bl?entert:'d against 'the person_ Thus. once anFTC investigation commences. cl party toc1ncHbitration agreement Jll,l~' in\'okesuch .1n t;'t'ent in line with Fl1rn'/ to aborttl1l'c1 rbi tra tion,

We cHe unaware of clIl\' C.lse likeFarrel ha\"ing arisen in t"he ITt context. IfFarrel were urged in al~ FTC context, thedifferent .... :· between the sections enablingthe FTC and the ITC might .,flord " per­sUc1sive argument that binding arbitrationmay properly be pc;ed to pre\'ent the liseof unfair methods ofcOInpt'tition ()\'erwhich the FTC would otht'l \,'ise h.l\'ejurisdiction,

Tht' net of the foregoing is thelt anc1rbitr,ltion clc1use may permit resolutionof p.Hent (or other intellectual property)i:-'Sllt'S b\' \\'el\' of binding .lTbitr,ltinn inlit'li of c1' proc"eeding before ,1 U.s, court.but 110t ,1lwclyS in lieu of ,1 proceedingbL't"<)ft.:, ,1 L1.5, .1dministr.ltivl'" .1gt..'11C~', t'Spt'­(i.-ii.\· till' He and perhaps the FTC,

Turnill~ no\\' tt.l patellt intt'rfl'relKt.:'5,thert.:.' i:-, dtmbt c1S to tht' \'.llue of .1Tbltration of,111 intert"l?rt-'nCl' (,15 pnwidl'd t"or in 33 CS,c..::; IJ:;(d)) Dt.'C,lUSt.' thl' P,ltent ,lIld Tr,ldem,lrk(Jft"icl' b not bound ,lS to ,lin' issue ofp,ltl.'nt~lbilit.\,.~l Nt.'\'ertht'iess. c1rl~itrc1tion ofIntl..'rtt'rl'llLt' iS~lle~ hcl~ l"'t't'n undt.'rt.lkcn l)l1nwrt' th,H1 olle OCC.lShlll-cHlli h,l~ beenrt'pnrtl'd ill .11 leiist 0111..' e,lSt.:', In Lit/a \',f{i/",I.\·,I.~~ tIll' pclTties tll ,ln intertl'rt'IKet'lltered II1tO ,111 ,ubitr.ltitlJl .lgrt.:'t.'JllL'nt to

" ',n'old tht' del.l\' .1nd t"pt..'lbt' .bso(i­,1 tt'd ,,'i th form,l" Intl'r1l'rL'nCL' pn ll:t'L,d­Jll~S in thl' II'TOI ,lIlti ill thl' C\lurh ofth~' Lnitl'd Stcltt'~. ' ,,~:

T!ll' ,lrbltr.ltllr dt'Lidt.:',.~ till' issue or' pnori­tt' l'ut dl'c1l1ll'd tt.l dl'cidt' m,ltter"i of

must pursue its c1"ims beiore "n ITC "rbi­tr"tion p"neL" The Commission "greed\\'ith the Alj .1nd cited Mit;uhi<iri .\1,II,ll·;"in support of its \"ie\\· ~h<lt

" ',1 pCtrt~· 10 an intl'rn,ltitlIl.11 tr,lnSclC­tion \\'ill be reqUired ttl honor it:-, <1;':!'"t:'t:'·

ment to arbitr.ltt' disputes il1\"(ll\'il1~

..;t<1futon· d.1im.;, undt'r L'S, 1,1\,' \,'h~n

thL' arb(trdtloJl .1f::rt't'nlent rt:"lchestJwst..'t tu to r\,· issu eS-;:1 nd.\, ' ht'll th:'Te,1te-116It'g.ll (onstr,lints e\:tt'rn,11 to the .1grt't'­ment \\'hich torecJllst' arbitration ofsuch claims.' "I'

iI

The Court 01 Appeals lor the Feder.,!Circuit found such" "le&,,1 constraint f J

which foreclose[sJ .ubitration" andreversed on the grounds th"t (II thedirections of I q U.s.e. § I 337(b)( J) and~c) are mandaton' (i.c" the Commission

I"shall investigate;' and "SIl<lJl determine"whether or not there is a t'iolation) and(2) the narro\\' e\:eeptions of Section

I 337(C) to the statutorv mandate dOl1otI embrace it prh'ate ,lgreement to cHbi­trate.I ...

The court noted th.lt A1i1:,ubi:'/lI"s re.l-soning was confined to judicial pro(t.'~d­

il".gs. did not extend ttl administr.lth'eproceedings. and thus was consistentwith the court of clP~'~c1ls' ruling, Thecourt :'woked Mit:,ubi:4,j's stCltement thatnot "alleol1troversit7s implicating statuto­r~' rights aresuitable for arbitration,lIlt is the congressional intentionexpressed in someother statute on w:,ich

I the('_"~srnust relv tt.) identifv an\' cate-

I gory of claims as to which c1g~ecments foarbitrate \dll be held unenforceable."]':"The court also cited Gilwf'f \".

.1 "'lcr~tnt{'/Ioltll:'()fl LIlIlI' ClfJ'" I." wl1l'rt..' .1n

.ubitratinn agreement nper,lted .1S ,1 W,li\'-

1

',/ l'r of access on I\' to .1 ,udicial forum tlndnot ,1ncldministr.lti\"t.' t"l)rum:

Tbt; it ,ippedr" til.lt, IhH\\·irh:-,[.ll1d·

'11: ,)th('rtdse binding .1Ild 1.'lltorLL',lbll','~r,'enH'nt tOclTbitr.1tl:'. ,lp.lTt~' tll su(h,lgreement m.1Y c1ttl'mpt hl pl'r~ll,ldl' tlwITC tll inVl'stig.Ht' ,lnd dt.'tL'rnlint' ,~'hl'tllt'r

(IT llnt there is ,1 \'iolcltit.lll nfSt'ctionJ37(.1), clnd if successful. 1ll.1~' ,100rt arbl­tr.1tilll1,

The Fl1/Td dl'ci:-,it.1I1 i~ dirt'ctl'dtP tilt'imp,1ft of <1 prior ,1~rt't..'lllt'nt tll .ubitr,lh..,nfl'/" .111 ITC ill\'l':-,ti~,ltlllll h.1" (lIm·

III t'11 Lt'd, QUL'r~' wlll'tllt'r .1 P,Ht~· \dlll

\,'i~hL'~ th,H tilt' {1tllt.'n,'i~l' ,l:..>;TL't'd hI ,Ubl­tr,ltillll ~ll Inr\",H,i 1ll.1\· "ULLl':-. .. tull,l'!llnln tllt' putt'lltl,ll ITe (tll11pl.lll1,lnttrt)1l1 rt'qUt'~tll1~ tl1,lt thL' ITC initi,ltl' ,11l11l\"t'... tl,~,ltillil. -.. :\bll. the ....-l)Urt lH ,lppt',ll ..,1d"I,0\\'kd,~l'd tht' Pl):-'''lbdit~· th.lt till'

IntellectualPropertySeminarSet For NYC

II

iI

iI II rtlitration and

IA mediation of

intellectual

Iproperty disputes will bethe focus of a seminarto be sponsored by

I the Associalionof.lhe, Bar of the City of New

York on ,Oct. 24.Speakers will discu~o::

the differences in ADtipractices in ,the UnitedStates, Europe andAsia. David W. Plant,chair of the associa­tion's Committee onArbitration •. will·. serveas moderator.

The speakers are:James E. Brumm,executive vice president.director and Qene.ralcounsel of MitsubishiInternational Corp.;Deborah Enix-Ross,legal affairs director ofthe U.S. Council forInternational Business;Francis Gurry. director!advisor, Wo~d Intellec­tual Property Organi­zation Arbitration Cen­ter, Geneva; Dr. JulianLew, partner, HerbertSmith, London.

For more information.call Karen H. Millon,ABCNY director ofed ucation and training.

(212) 382·6619. •(D

\

10 JULY 1995

into one "arising under" the patent'a,,"s as required to render the jurisdic­~:CI!1 of thl' district court based on sec­tion I:;:;S: "-

Virtually every defense to aclaim under a United Statespatent may be the subject ofbinding arbitration underSection 294.

Hll\n~\'l'r. ""L/,fl~l~'t' (tlllf" .. :o L:"

,\kll~lI"t'lIh'l/t~ ~lI~, \" r:,':nl,i;,: > k.'ld th,H.~n ~hl' Cl"nh~\t llt ,1 ... t.ltL' 1,1\\" bUjint.'s~ di~­

pclrcl~l"ment d,lim llrigllhlll~' brought in~t<lte court. the Jisputt! bdlln~"d in feder-,11 (OurtbecilLbe pl,lintiffs ,right to reliefnecessarily depended on resolution of asubstantial questiOn(lf patent law, dz.the (,1JSitV of defendant's accusations ofpatent infringement. In Addili,,' C<1I,trols,the Court of Appeals for the FederalCircuit d'ctinguished other opinions onthe ground that in those cases plaintiff'sright to relief did not depend upon reso­lution of a substantial question (If patentlaw,

The net of the Federal Circuit opin­ions discussed above is that-in light ofthe recent trend encouraging arbitrationinfields previously resen'ed for resolu­tion in the courts, the lack of express pre·emptive language in th,> statute or legisla­tiw histo,,' of 35 U.s.c. ti 294. and theSupreme Court's \\'illing~ness to alIo\\'parties to choose the Jawgoverning arbitration. andabsent contracti.h1l or statu·torv limitations to the con­tra·ry...;....issues of patent\'aliditv, eniorceabilitv andinfringemeflt m,l~' be sub­ject to binding arbitrationoutside the scope of 35u.s.c. § 294.

Although Congress has e1uthorizedeubitration tor p,ltent disputes. it has notdnlw ....n f(\r r.:'"PF'yright j:~;putc:~" '" \':c":er­tht-'Iess. (op:~rightlict'nsl' .1~ret.'ll1ents milVproperI\ pnn",idt.' t"nr bindingtlrbitratloilof disputes .1rising out of the agreement.These agreements. '!."'\'t..' bel.'1l challengedunder 2H C.5,C" § lJJH(c1l. which gh'estederal distric~ courts "{)rigint11 jurisdic­tion" of ,lCtions for cl)p~'right infringe­ment <1S well <1:'0 for patent infringement.In e1ddition. as \'·.:1S the casein patent dis­putes betore 11.)H.3. it has been argued thatpublic policy_ pnlhibit~ the submission ofcopyright cIairils to arbitratinn-or at the1t',lSt. precludes arbitrators from deter­mining the \'cllidit~· ni(op~'rights"Thesearguments heH·e generclll~' not been 5UC­

Cl'sstUI.In KalllllA'll:/ .\'fu::/t'" Corp, \'" Rdl1bi,,:,

,\'fu:,/( Cllrp,,~,Lthl' Cuurt of Appealsendorsed thl' tlrbitr.1L"Iility of copyright

"the (,lct th,lt p,ltent issues clre re!t'\"lntunder st.1tl' contract lel\\' to the resolu­tinn Or" .•l (ontr,1I:t dispute 'cannot po~si­

bh· ("(\I1\"l'rt cl suit for brl~.1ch of (ontr,let

patentability which he submitted to theli.s. Patent & Trademark Office.

But the express language of Section135<dl pro\'ides on'" that the ell"'­missioner is not precluded from deter­mining p.ltt:'nt.lbilit~,. It dlH..':.-. Iwt precludean arbltr<ltor from n1<lking- such .1 lh·tt-'r­min,ltllH1 ~ub,t:'(t to the Cl\ll1mi:-;~illllt.'r·~

review.Arbitration of patent bSlIt.'s ma\ be,

possible e\'en apart from Section~q-l, Ifthe arbitration arises out of ,1 contract dis­pute <e.g., whether or not royalties aredue under a patent license aA'reement>,validity Olav not be in issue and Section294 mav play no role, especialfy if thecontract limits the arbitrator's powers inthis regard." The Court of Appeals forthe Federal Circuit has endorsed a districtcourt's characterization of the <ubitrator'spowers:

" 'The court holds that the arbitratorsin this case did not imperfectly executetheir powers by refusing to invalidateWright's patents. The arbitrators'"powers" in this case were derivedfrom the agreement of the parties ,lndthe governing federal law. Those pow­ers were limited primarily to constru­ing the contract between the parties todetermine whether or not certain tech­nologv came within the scope of theparties' agreement. The arbitrators didnot have any power to invalidatepatents. since· the parties. Ilt;.>\ Itr agreedto arbitrate the \'alidity of Wright'spatents. nor does federal lawgive arbi­trators ,lnindependent power to in\·al­ida te p<1 tents.' "1~

Copyright IssuesFurther. if " p<1tent issue is elmenable

to resolution in" non-federal forum. slich,lS clst,lteCourt. then it should '<1IS0 be... uPject to re~(llution by arbitration \dloll~'

,lpart from Sl'ctIon ~Y-t, ror t.'\,lmple. III .1

dispute .1"; to \,'hL'ther cl st,lle cOllrt ,,"asthe propl'r torum to decidl' "rights"bet\n'en t!le p,lrties to a peltent clnd ho\'i.'tl1llSe right~ rele1ft> to the pilrties' financialrights ,lnd obligc1tinns under ,1 purchase,lgreement. the Court of Appeals tor theFed er,l I Circuit ,lffirmed a district court'sdecisit.lI1 tl) dismiss for lack ll{ subjectm,lttt.:'r jurisdiction under ::?8 L:.5,C, §1338(,1).> TIlt' C{1l1rt of .lppe,lls found th,lt.1n l'\'.lIU,ltIOn of thevaliditv or "true"\"alue of thl' patent ,,'otdd be ~ml~' ,1n t.'It'­l~lellt l1f ,1 dl'tense tn the C{lntr.let ,lCtlOn.1Ild held Ih.lt

DISPUTE RESOLUTION JOURNAL 11

infringe1nent claims where copyright precluded arbitration of disputes ,wer thevalidity was not in issue. Kamakazi su.. J \"alidity of a copyright.for copyright infringement after a license The Court of Appeals for the Se\·enthhad expired. because Robllins continued Circuit rejected this argument whereto print and sell the Lor~'n~ht~d works. \·<llidit~· IS at issue in a contract dispute.Robbins contended th<lt K,lflldk,lli's suit nlltin~ that "<1 di::;pute tlyerthe terms of <1

was tor breach of contract ,1nd the district ((lp~·ri.l::ht lkenst' is not deemed to arisecourt lacked jurisdiction. In the ,llt~rna· undt.'r the Cllr~..rightAct"· .... ;..e it b,ti\'c. Robbins sought ,1rbitr,ltil)!1 pursuant'~tol~r~n~ote_~~~}_I11 {_h_~f~.q_~r~1Lgr.,lnLHhe

to,thelicenseagret:'ment;-Thedislrit"t i.~o-r~·ri~htl."'4.. . .... _ _(ourt ruled that the SlJitw(}S for copyright The court sta ted thelt heca use the

The court of appeals infringement and the court had jurisdic- arbitration of a dispute in\"oldng an eco-tion, and ordered the case to arbitration. nomic mom/poly (i,t·.• antitrustlwdS not

held that public Thereafter, the arbitrator rendered an considered a threat to public policy by thepolicy does not award in fa\·or of Kamakazi, basing his Supreme Court, the arbitration of a dis-prohibit the remedies on the U.s. Copyright Act, i.I'., pute inmi\'inga con~iderably less dan-submission of statutory damages and attorney's fees. gerous legal monopoly (i.c., copyright)

Robbins appealed to the U.s. Court of that could easilv be drclJm\'e·tted bv thecopyright Appeals for the Second Circu;!, arguing creation of close substitute- pr~s';ntedinfringement claims that the arbitrator had exceeded his Hen less of a threat to pubiic policy.to arbitration, authoritv in applying the Cop"right Act Also, the public policy danger was fur-

in the arbitration proceeding. ther lessened b\· the fact th,1t the deci-The Court,of Appeals for the Second sions of arbitrators an!bindin~vnlv on

Circuit made it plain that the claim sent the parties in\'ol\'ed andhave,no vah.ie asto arbitration was for copyrightintringe- a precedent. Finally, andof special inter­ment. In "the circumstances of this case. est, the court noted that the danger ofthe arbitrator had jurisdiction to make an monopoly is "more ,1cutely posed byaward under the Copyright Act," dnd patents," vet Congress had passed 35"the arbitration clause was bro,ld enough USc. § 294 express/x authoriZing theto encom pass Copyrigh t Act cia i01:; ,ubitrativll uf patent \'aIidHy-issues.which reqUired interpretation of thecon- More recently. in an action involVingtract. "" multiple claims of b"'.'.' ',of con.tract and

.-.,. The court of appeals held that public copyright infringement, the Court.ofpolicy does not prohibit the submission Appeals for the Fourth Circuit held thatof copyright infringement claims to arbi- the Feder", Arbitration .Act requires thattratio.,. "The only 'public interest' 'n a the non-arbitrable issue <according to thecopyright claim concerns the monopoly arbitration agreement) oftherQyalty!created byl a valid copvright."" How- amount be sep'Tated irom the arbitrableever', ,the court did not have to face that issues (\-\"hich included copyrightissue, because the validity of the copy- infringement, conspiracy to commit copy­right was not at issue in the arbitration, right infringement, fraud and RICO(In fact. this issue was decided bv a di;.· claims), and that litigation should betrictcourU ~Vithout any such pub"lie poli. stayed pending such arbitration. v;cy concern the court ot appeals tound no Publk policy is not likely to continueff:-aS'.'!1 t·~~ Frt.~h:bit the .irbitratllm l-,{ (1I~'.\. .1::- tht..~ primary concern in copyrightright inir':lhement. Thus, KIIlI1tlkl1:i ldt \'aliditv drbitration C.1ses, It is more likelvopen the question of whether tJw\·,llidit: that fu~ture dedsim'~ regarding the arbi-of ,1 copyright is arbitr<lble. trabilit\' of copvright \·,lliditv issues will

In' Sfl!llrdl1l1 £<.'CI1I1I\' PI}:;! Ctl. \.. depend upon the manner in .\·hich theRI/lJI/J!t''foCt1t Pr,;::.-:.. lilt.,':' the Court of (Ollrt~ choost! to intt!rpret the arbitraticlnAppeals tor the Seventh Circuit held thelt clause.em arbitrator rna\' dett.'rmine tl1l' \'<llidjt\·of <1 cop!.:rig-ht w·hen the issue e1rist..'sin ~1 Trademark ;ssuescopyright license la\'\·slli~. After the licen~·

ing agreement bet\'\'een the tW{1 p,lrtie~ In(Ontr.1~t to p<1tl'nt ri~hts .1nd copy·11c1d t..·\pired. Post fi/l'd .1n ,lCtion, ch<lTg· righb, ri~i1t':" in a trademark in the U.s.in~ copyright intringl'ment and seeking ,uist..· primaril~' under the common law as.H~ltr.lti{)Jl. RlIl11bll'':"L',lt ,lT~tlt.'d tll,H tht.·rt..·~Ldt {If .1ppTllpri.ltL' Ll~t..· nf tilt:' Ol<lrk.1\I t· 1..-\I~...yrI~hh \\ l'rt.' Ill\ .did ,H1Ll ::"UL-il n~hh m,ly bL' .1LI~mer1tl·d h:' regb·Ilp~ ': l ..~ ,1Ti,:~r,lti\lJ1 lin tIll' ~rl)tJl1d th.lt tr,ltJlln pur';lI,lllt to thl' FederalClln~rl...., ... · det..'hlon h1 ~I\·t.· ft;'dt..·r.ll t.."ll:'lrb Tr,ldern,lrl... 1L.1I1h<lmJ Act of 1440, or b:·t.1\L~ILhl\·t.1 iLlri~J ictlllil l)\·er cnp~'right registration pursuant ttl {l1lL' l1r more statedLi:'1I1 ... ill ~S L·S.C. ~ I ,~H(clJ implicith- tr,ldt..'Ill.lrk ,lets, l)r bllth,

12 JULY 1995

iIr

Ir

II AAA Rules andProcedures For Handlingltitellectual Property Cases

/I D he use of altemative dispute resolution (ADR) processes.

in resolving intellectual property disputes is increasingas 'technology rapidly advances and businesses ~trive

for global manufacturing and marketing advantages.ADR methods have proven particularly effective in the com·

plex, fasl-paced environment of high-technology. entertainmentand infonnation industries.

Parties to these disputes look to the rules and proceduresdeveloped by the American Arbitration Association for theadministration of intellectual property disputes. including thePatent Arbitration Rules, the Commer.cial Arbitration andMediation Rules. andtlle Supplementary Procedures for Large,Complex Disputes. ' .

In ad<frtion to panellsts With intellectual property expertiseon the AM's comm8/Cia' panel, the seleel, nationwide panelfor the AM's Large, Complex Case Program (LCCP) has 46

i arbitrators and mediators specializing in the field of intellee-

I tual property. Their backgrounds and professional experiencecover such areas as patent and tradem", k litigation, trade

I seeret, Copyright law, complex technology and contract issues.

Icopyright and trademark registration and licensing, foreignpatents, data rights, software protection, and transfer of intel­lactual property rights. The panelists provide technical expertise

Iin such areas as data communications, computer and com­puter periphera:3, medical devices and technology, microcircuitand microaJmputerhatdware. All LCCP panelis,s also partici­pate in special training in the objectives, procedures, issues,I ethics and skills involved In managing a large, complexarbi-

I tratlon or mediatiOn. "! There Wolfe 12,192 business dsputes filed with the AM inr 1994, With claims andcountercfaims reaching $5.1. billion. Thisi includes 394 patent, licensing, trademark and computer cases

with claims and counterclaims totaning $881.3 million. •

Homewood opposed, contending that thefederol courts had original jurisdictionover federal trademark and patent issues.

Th'...!~., 10 y~~rs b~fciC Si:,'(tiGn ~'~.;.

became effective, the court held th •. tclaims for infringement of a federally' reg~istered trademar'k (as well as patentclaims) were not arbitrable because thejurisdiction ot the district (ourt~ over c1cause of action arising under the teder.11trademark (t1nd patent) la\\"5 was exclu­sive pursuant to 28 U.s,c. ~ D)8, Till'H(II111'il'(}(Jd court did recognize, h<.n\"l>\"l'r,that under Slln1l' circumstances .ubitr,l­tion might be ,lppropriate:

"'Ho\\"t.;'\"t'r, ... hould it de\'t;~h)p tn'mtuturL' F'IL'th.i!l1.~'" <lnd nr pn.'~tn.ll db­~'(I\'l'ry thtlt thL' lIlst,lnt .1ctllln IS in rL'<ll~

lt~· ,1n ,ll."tllin nn the Franchi"'L'..\~rl't'Il'lL'I1t. thl~ Cl)Urt dl'''''S lll't mt~ndthat thb rullll~ shuuld be a bar tl) ,ubi­tr,ltlnn It ,ubJ,'rtltiOIl i:, appropri.ltL'."~

14 JULY 1995

In U,S. Diz'ersifh'd Illdustrit·::., II1C, \",

BarriL" Coatillgs Co,p(1ra!ioll,~: an action forbreach of contract and trademarkinfringement, defendant mo"ed to stavproceedings in court pending arbitr,llior;.The arbitration clause Was broad:

.. ',-\nv dispute arising hereunder shallbe settled by arbitration. , " accorulngto the commercial arbitration rule~ ofthe American Arbitration Associationand,ln\' a\\'ard therein rna\, be enteredin any court ha\'ing jurisdiction.' "

The district court found that the trade­mark infringement issue W,1S within thescope of the broad arbitration agreementand granted defendant's motion.

The foregoing authorities center on

I dispute agreement and manifest the needI for care in drafting such clauses to effect

the parties' intent. The issue not yetdefinitivelv resolved is whether or not anaked c1a;'m for trademark infringementunder the Lanham Act is properly thesubiect of binding arbitration, In light ofthe recent judicial trend, the answer islikely to be in the affirmative,

Federa' Antitrust and Securities Laws

The more recent dedsiol'ls concerningthe arbitrabilitv of issues under U.s,antitrust Jaws and securities laws are like­ly to weigh hea,'i1y in future decisions infavor of the arbitrability of intellectualproperty issues, As with intellectualproperty claims. United States courtsonce generally held that claims arisingunder the federal antitrust, securities, andRICO la\\'s \\'ere not arbitrable for publicpolicy reasons.H Recent Supreme Courtdecisions, ho\\'ever, have rejected publicpolic~' as <1 justification tor holding feder­"i anrirrust. SeCUrities, and RICO claimsnon.:lrbitrable.~~

In Sc/rak \', A/halo-CI, ,'t'" C(l".~; theSupreme <-,)urt upheld the arbitrabilitv,with respect to an internation.ll arbitra­tion agreement. ot claims based on allega­tionsof ir,'ludulent representations as totht..· status ottrademarks, and arisingunder Sectinn IO(b> ot the SecuritiesE\change Act of lQ3-t. The court foundth,'ltpuhlic policy mandates this resultQI!CclUSe without a "contractual provisionsDecit\'ing in ,h.i\·ance the forum in whichl:'I~pllte... ~h,lil be Iitl~ated and thl' 1,1\\' toDl' "lpplied:' the "t~rderIiness ,lnd pre­dlct,lbilit\· ~s:--t'ntial to an\' internationalbusint:'ss'tr,llhc'lctJl)n" would be impossi­biL, to cl(hit.'\"t~.""" The disspnt rejected arbi­trcltilll1 tor Section lO(b) on statutory and

I

I

II

the arbitrability ofcopyright validityissues will dependupon the manner inwhich the courts .choose to interpretthe arbitrationclause,

Triul/Il'h," the Court 01 Appeals lor theSecond CirclIit stated in the context afdRICO ,ubltrati,'n th,lt the arbitratorsClnlidtrd'/l' tht.'lr .l\\',ud if the\· f(lund ,111,1I1tltrust \·iol,ltil 1ll. Indt'l'd the ~ourt wentturtht.'r ,Hid ~t<ltl'J til.l! !!l .tll 'lppropn,ltt'I..·,l ... e .lrbitr,lh)r~ l-t'uld t.'llh.llh-l' thl'lr.,,,·ard b~· PUIlItI\·e t.Llnl.l~t.'~"

. _. pr"-dl:'J'uft' A:~'·I'I'J!I:·'/~" t,' o"lrbftrll/t·..Prior to i\!tJt:,ubl".":'/Il,L".S.cl)Urts h<hienforced postwdisputt.' ,lgreemt.'nts to ,ubi­tratt:' antitrust issues. The courts analo­gized these agreements to settle~ent

agreements, linding thev did not \"Iolatepublic policy. On the contrarv, pnor toMi/Sllbislri, United States courts had ottenrelused to enlorce pre-dispute agree­ments to arbitrate on the ground that they,·iolated public policy."

The MitSlibislri Court, in the context ofthat international antitrust claim.enlorced a pre-dispute agreement to arbi­trate, linding that it did not violate publicpolicv. This lelt the question of \\"heth~r

domestic antitrust claims could be arbi­trated under pre-dispute agreements toitrbitrate.

Since Mitslthi:41i, U.s. courts have per­mitted arbitration of similar disputesunder pre-dispute agreements, Thus, theSupreme Court has upheld the validity 01pre-dispute agreements to arbitrate RICOclaims, securities claims, and Age Dis­crimination Employment Act (ADF.A)claims. Appellate courts ha ,'e upheldsuch agreements involVing EmployeeRetirement Income Security Act (ERISA)claims)J

• Tire PuNic lntl'rt':.t. fn 1968. theSecond Circuit in Al1Icri(1111 Sa"('tl/;~ pre­cluded arbitration of domestic ailtitrustiSSUt'$" Since /vfit~((bi-:,Ill. if' 'Q~ri. both dis- Future arbitrationtrict .lnd <lppellatt' courts in tht' L'S, have rl ., ....." _ec!s.!cn~ r~gaiuii1g'p.lo.'~ti·.'n·~·j th:.:- c\.~i1tii."'tit.'d '-IPf..ljjl'.lhiiit~· l)fthe AmCr/(llll Sa!,'!ll ·illctrint' \\"ith r~spect

to the ,1rbitr,lbiJit~' l){ dOnll'stic ,lntitrustdisputes"

The courts 111 l~;':C C,rr/bt'. 111(. \ ..;\!llkill-i\·ltlbirll. /11(,.~~ <llld Ct"/I({I Ll1t01(l­l1l1/l'1"I(l1, 111(. \'. Sl'lkt 1 Tilll~' Clrl',.~" rejectedthe Amcricl11l Sirtt'til dOdrillt.' .lnd ,11llH\'edthe .Hbitration {)t' dl)nlestic ,lntitrustissut.'s <l-fter r<.>\"il!'wing the SupremeClHlrt's deci~ions III ,\.llhlllJi:'hi and,\·fl.\.111htlll, Tht.· CI\C Lllnl't' court statedthat the Supreme Court "if confrontedsquarely with tht.' i~~ut.' of its ItheAmt'rlt"t111 511(t'tll doctrine's/ continued.lppIi(.lbilit~·. \\:ould mll~t certaintl~' dis-(.lrd ~,lid doctrint:'""~- The Gl'flIll) opinionis tn the S<lme effect.

Dicta nf C.5" cnurts llf appeals are in,lccllrl:l. In Kt1'cl1/::.kl \'. ell/l"tlgel Tribune

public policv grounds, but interesting"·,stated that "Iill a question 01 trademar~s

were the onlv one im·olwd, the principleof Tlzt' 8r(,1II;'11 \-. Zl1pa/11 Off~5h(I"t' CII.,'­(f<1\'oring {f'rum ..,dectinnl. would Qt:' ...-(In­

trolling," .'.;',. ,lrbltr.lti\lll \\ IlUld b ...'allowed. l~

In \l:!.:.;!i",;/,,' :l1l" Supreml' C,,~j(:

held that publi(Jl()Iit.-~· r,.;,J not J..lrl'dudt..'arbitration, of <1 disputE::' <lrising undt..'f theUnited St'ates <ll1tihust laws. ,1t Jt.'c1~t in th~'

international (onte\t. The /vfif'511bi~ItJ courtdid not address the arbitrabilitv. in tht>U.s., of domestic ,1ntitrust claims. Thisleft at least three public policy-basedissues unresolved: (I) whether the avail­ability 01 treble damages In domesticantitrust actions would preclude arbitra­tion; (2) wI ,ther upholding pre-disputeagreements to arbitrate domestic disputeswould ,·iolate public policv; and (J~

whether "the pervasive public interest inenforcement of the antitrust laws," andpreviouslv unilormlv 10Hm"ed ,bv theCourts of Appeals, would continue topreclude <lrbitration of domesticantitrustdaims in general. Each of these questionshas been addressed bv U.s. courts.

• Tn'hlt'D(111ragt~;, In Mitstlrishi. theSupreme Court ruled that even, with theavailabilitv of treble damages, interna­tional anthrust claims were arbitrable.The court emphasized the compensatoryfunction of treble damag:!s in antitrustC<lses over the penalizing and deterrentfunction of such d<lm,lges. The court con­cluded that "so long as the prospectivelitigant effectively may vindicate it:; statu­torv cause of action in the arbitral forum,the" ~t<ltute wilJ continue to serve both itsremedial and deterrent function.~1

In I,Her decisions. the Supreme Court,lnd other courts h,l\'e extended the retl w"oning nt,'',/I,!:'II/'I ...:.hi to the domestic lOOIl­t~·\t. :j·,.\il.'.... lu;r,lll. tnl;~Uprenlt''-ourt

lddrt.'~':'t.'d 'tilL' ,1rbitrabiLt~ . ,1" RICOcl,lim. in light ntthl' trt.'ble 1..:<H"' ....ages ,l\"i1il­,lbll' under RICO. Thl' (ourt found noth·lI1,~ in the RICO "t.ltute or legislati\·e his­tnn' l:'\clllJin~ RICO claims from thert.'d~r.ll Arl,j'tr<ltlOn Act. The c()urt11l\"okt.'d /\l1It-:'II/>I":'//I ,1Ild reiected the con wtention th,lt public polic~· precluded ,ubi­trJtillg RICO d,lim~" The court noted th,lttill' l~ico trl'blt.' d,lm,l~t'S pnl\"isions \\'erellh1dell'J llll tht.' ,lIltitrll~t statutt..'s and ~a\\"

11ll reason tl) predudt.:' ,m ,1rbitr<1tor from.l\\..lrding trl'ble d,lll1,lgL'S. l)r to .1 II l)\\' thetrebll' d,;magl'-' prtl\'I:":';llfl lH- RICO to pre·-Iude arbltr,ltll)n l)t' RICO (l,llms.

TrL'bIl.' l..i,ll11,lht.·S ,lppt.'<lr tl) he ,ubitr,l­(Ill' 1Il donwstic ,1l1tltrust ,1rbltrations <lS\'·l,II. III f.:~·I"'- \ll"l~('t' R,'~illm\ (\11")1. \' . .\-f·T

DISPUTe RESOLUTION JOURNAL 15

(

511,~lr:"I/1;AJ/t"riCtfIlE,\ ' .. Illi:. , 71'11\ F.2d tI,J(:!ndCir.19ShlCRICO·cJ.lims andcJ.wns under tht'5t;(Untlcs E\eh,mge A<:f of IQ.1.J rionMr.itr.l·Dl~i tor public pobe\" red~ms), re\"er~.lt ~~.:

L.5. 120 nQS71; A:lltcril·f111 Sllfi.'!.l/'E1llf1l'l1/fl/lC"l'jI,i·.·/.P. ,\;fligulr,' { ... GI.•..NI F.2dH21·(2ndClr. IQb$l(dntitrust issue~ n(1n,lrl'iti.1hleJ.

jj A11/:'IIN~III, ::Ul'fII. note Q. at 6J~(puf>lk pl.11i·

.~\' JIll;S i"of pn'<:,Iudl·.1rbitration elf .1t!hlrustissut'<; In inten1.1fiona/ context I; Rthfn.....llf:,fl·Q/lII,,:' 1'. Sh,·f/r.-:(lufAm, E.\'I'" .JIll}, C.5. oJ;;(J489J(expressl~' o\'errulin~ Wilklldndfind­lOp: ddims under tht>·5t'curihes' Act ()f 19Htlif>itrahle): Sh''tlr~tlI/IAmt'nc"" Exrrt'i>~ 111(, 1'.

M,M"I/lm (hl'r('rn.lft~rMcM"flclI1J, 4S2.·L·.5.120 (/9S7)(findin~d'llm:-under RICO anJunder the· securities El(<:hange A(,,·t o( JQ3..Jarbitrable).

~;'~17 CS, 306 (197-1).

~1I1',.,I. nt>lt';<.1 at DI 1

··~(17 L.S. 1

j~ ~IIJlm, 110f,' .J~, at ,:;21.

I~S/l/'rd. notl' lJ.

'.' Id .11 fl3;

".:,·,>,01; ,1,'l",·.I"ll·,", (,'".I;rL·,·''I' ".J2:<1 i"':.C :'llll~lh<'lrl""'fl

II< !d. •1t 516.

":-~:;FSu~'r' 1l1'1.11l1.11"',(D.I'.R 14 /.;tl,

. ":-'/ I "'uPF' <.J:--~.ll:--'" (... .D.,.) 1'4~;1

': Fnrt·\:,1n1rl,'. C"/</' ,·:LI"/·". -ltlS F.2d-l1':-th(lr 14';'-l:H",1"- ,1 Cl:'nl;r.ll nMttt'r .1nt,trl.!~~

,l,llm.,;.lrl:' not ,1F'pr'lpn.1t" . ""cd'" ,11 .lrDltr,1'Il<,lnk\.<"qltl '\\'I1<'n Ihl'~l~',-<'l'nwnl ttl .ubl'Ir,ltl,'I:, 0'.1<1(", ,lttl'l: tht'dISruh.··.liI:-i.·~ ") J.N

FSupp IN

fl"I:~"1 " .\krnlll:lJll.-h. rIL·i'a. rOllltT {~

"';II/1lh 7 F;\J 11111./·11" 1~ (JrJ Clr 14tl11: •NI ". f ;. .":'hml"'l'111.dll'/<III, A"I,"'I(III1':f; \1'.. {II,' •

</2hF':d Ilh.l:!1 f:!ntfCrr 14411

Mi/;u/'i,lri, buttressed bv Gillll"':'" "dic­lale" that the antitrust claims oi appelle~"are subject h) arbitration.N ' ,

E.lCh oi these opinions acknowledge;the ,1rbitrabilit,· of pre-dispute agree­ments t("l <1;-bitrate, renderin.g public poli­c~' grounds for prt.'cIuding <arbitration ofdomestic .1ntitrust issues moribund.Accordingly. it is likel\' that in the future.cou rtsi n ~ he U.s, wi IJiinddomesticclntitrust claims arbitrable. •

-L:;:-F~urF' l"I~I(SD'\) jll::;;"';)

U ,11 h:';"

.' oR-I F.ld ~2~ (2nd Or. J'-1H2J

'I /d.•1t 2.111-.11.

': /d, at 2.11

. tHh F.2d IIQI. 'I<.),,·tlq r;thCir I<.J,'\;J

; fd,.1t 1 !4-l

1\ ;i~,' .....

~l 8a!l.mi ,\'f,'dll'111 Pmd/lct~ ;'. ~\·n\'/zl. S2J F:2d327.::'.11 (Fed.Gr. IQR7L

'. {.:n:! '\.' ... ~·~\~..j·r ·1')\1.1 ..... {k",':','r!'"!<j....~.

:"::;J'{'L'dt·,•. 111, "', £::/,'<S:;.:'t F.2d <1{lQ,411. 41 J.14 {Fed,CIi. 19.'iHI.

:~1d.at,q13.

:~ "'1St> F.2d '47"0. 479 (Fed.Or. 199:'1/.

~.. Ch.lptei 4 of Title I;' 0; the C,S, C()~le pn)·~'ideS Wi the protection (It semkl)nduetorchip designs. Ofparticular mterl'st IS Sl.-'C. Q07",which prOVides th.1t.m Inn<l(ent pUKh.1ser 11'­,m infrJn~zng sl'miconductor chip 1'i.Ii.lbleonlv t"ora reas(mablerovalh·. the .1mount tobe :'determmedtw the c~)uri in· a c!\,ildCt!ontor infringement -unless the p.uties rest)l\"eth.. Issue li~' volunt<liynegoti.1fi(.n,.medi.l­tinn, or bindin~ ,1rbltratit'lfl,"' '7,C.5.C."ec.907(bl.

"'::,/11/111,., R,I/1I ;. (l,lllllnl\,' l~,"III',11/11

1'1Ii'l1 .. I1,·" h, . <.,/h.J F ~d J-l:;:;.I-lnl1-(,) '-llh

:l1ld.'r !h(' ...<',unlll.· ... Ad ll! I<n, IH111.Hi':tr,l·['h' tt'r ;'11('1:, plllz~'\ r",h,IT'!"" \1, \1.1",;"

l 1M(lF':'1l~~F 1~(lI('.D.lIJ )<"/:-"',1

.• , 1,1,11 )~!'--I In lqq~. tllt' lnlt' liJ'... trl,:t ,'dUn

.1Iflrllll'd .In ,nr-ltr,lt,lr ruJill~ th,ll llll'IIt.l'r1'-!'I' ll11~i.'r ,I h'rll1l1l,l1,'d .1~rl'l'l1wnl Il1U'",!hln~,' l!~ c,'rpI'r,lll' n,I1111' I,' mlllrnlli" c','n­

Itblt'll f·,'d.-r,l'jtr.kit'lll.lr" tl ...::h' ... ,l!-~~~,lrl'nlh\\",'rt' 11,'1 II'; ~"·lh.' /-.I;\·I~ 'L-,"!' f '=:"-',"lill ~ "lTl' ...::- 1'2'-'<1":'1 1 :,\ P II: "j«~

Co.,;s the Court of Appeals for theSe\'enth Circuit stated that "it seemsunlikelv after McMa/"1/I that the principleof Mi/sllbislIi can be confined to interna­tional transactions." The Court ofAppeals tor the £il;hth Circuit ha' ,t,ltedthat Mit~l/bi-::h; and ,\1clvtalrl l /T "ma\' indi­cate" that antitrust claims (an h;: Il1cldethe subject of arbitration between a~ree­

ing p.1rties. ;,j The dissent Wclsmore out­spoken, statingthatIYlcMtl!r"J/ and

The issue not vetdefinitively resolvedis whether or not anaked claim fortrademarkinfringement underthe Lanham Act isproperlv the subjectof bindingarbitration.

'1992 Wl 223J ,1r "J (ED.Pa. Januarv 2.1Q42l. .

,"':1/'rl. Ihlll' 11. ,11 1J;n

: SectIon 282 of tht.· P,ltent Act prom'idesl>,pressly that IIlf,', ,11M nlmmiringement.clb"tmct' of habiht\' Illf infringement. unen­/orcenbilitv, and m\',lIidit\' shall be defensesIn ,In\' dC'flOn (On(l'rnl~g the \·d/ldit~· Of

rnfrlngement of ,1 p.Hl.'nt.

- ;'/')4 F2d 1304 lFed.Clr !4~::'J

.. : ,\ t I I '-/ r~ ...

'n.ll F Supp. 12(}9 ('vV.D..\,'.Y. 1986l. atfd HonF.~d 104:; (Fl.-'d.Cir. I~H6J.

'f.i.lt1212.

.. Y;"h F.2d 7~b (F~.CIi. 14q2J, reported in fuJI,It Il.Il.:I2 WI. 217ib.1.

! 8t'ckmall 11l5trUl1Il!l1t.;. file. ~'. Tech/llt'lllO,'t't'{OI'. Corp., -IJJ F.2d 55.63 (ith Gr. 19iOJ.In contrast, dispute!' as to '....;hether or not .lpr,)duet \"'as wIthin th"" scope (lfpatenrddlOh .lnd rhu.,; sub/t'et to roYdlty pursuantttl <l Jicen::.e agreement "ad been regarded asrhe proper sub,eet Of binding arbitrationunder either federal law or state law.

ENDNOTES

. TIll' ,lrDJfr,1I10n d,lU:-l.-' lnn)"-l'd the rules l)r"llw Inll'ilhltrlln,ll Chambl'r ,If CommerCl'

rhl'" (J,lll"'l' .11 ..." In\',IJ...l'd'lh.' ruf,· ... ,ll thl'Inl,'rn,llhln,1J Ch.lmD, r 'If C,In1n1l'rn'

16 JULY1995

ii",'; l',";' II,"; /1::,"'(1 ]"',I,f,' L"",'I 1/ <.J..j'"

j:<1 ll..j:-il·l'dClrl<.J<.J11

l !1l~~:\11 ": ... ~,\ ~"'''' -.II >',2>'· ' ... - ...····.I ... ,·d \.........

Intermediate Sanctions: New PublicCharity Rules for Insider Transactions

Robert A. Boisture5

Federal and State Warranty LawsMichael F. Brockmeyer and F. Joseph Gormley

23

The Commencement of aBusiness Bankruptcy Case

Richard F. Broude31

Drafting for Confidentiality, Arbitrability, and ,"Enforceability in Intellectual Property Agreements

(with Form)David W Plant

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The ALI-ABA Course Materials Journal features selected outlines,forms, checklists and other documents from ALI-ABA Courses ofStudy and is published six times a year by the American LawInstitute -American Bar Association Committee on ContinuingProfessional Education.

APPENDIX C

Drafting for Confidentialit)T,Arbitrability, and Enforceabilityin Intellectual Property Agreements(with Form)

by David W Plant

"ADR" refers to alternative dispute resolution; "Ip," to intellectual property;"AAA," to the American Arbitration Association; "ICC;' to the InternationalChamber of Commerce; "WIPO," to the World Intellectual Property Organi­zation; "CPR;' to the Center for Public Resources ("CPR") Institute for Dis­pute Resolution; and 'The New York Convention of 1958," to the Conventionon the Recognition and Enforcement of Foreign Arbitral Awards, June 10,1958,21 U.S.T. 2517, T.I.A.S. No. 6997, 330 U.N.T.S. 38.

A. Introduction

1. Alternatives to conventional litigation can be advantageous in protectingconfidential information. Various techniqu"s, when used under the propercircumstances, have proven effective in this regard. However, a techniquethat is effective in resolving the underlying dispute may not necessarilyprovide long-term protection of confidential information, and thus in thisrespect may not prove advantageous over litigation.

David W. Plant is a partner in the New York City law firm of Fish & Neave. He is a member ofthe International Trade Commission Trial Lawyers Association and a member of variouspanels of neutrals.

A complete set of the course materials from which this outline was drawn may be pur­chased from ALI-ABA. Can 1-800-CLE-NEW5, ext. 7000, and ask for 5B41.

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52 ALl·ABA COURSE MATERIALS JOlJRI"AL JI.;!\:E

2. Similarly, a technique that offers some protection of confidential informa­tion may not satisfactorily resolve the underlying dispute. For example,when considering arbitrallon as the dispute resolution process, you must

... becoIlcerIled a.botit Wha.t issues (espeCially intelleCtual property issues)may properly be arbitrated and whether the award may be enforced. Ifarbitrability and enforceability are not ensured, investments of resourcesin arbitration may yield disappointing results.

B. Confidentiality

1. Confidential information may include substantive information on technol­ogy, manufacturing recipes and processes, ways of doing business, cus­tomer lists, financial information, business plans and strategies, and thelike. It may also include the fact that a dispute exists, its subject matter,

, the status of the dispute, and the terms on which the dispute .was re­solved.

a. The advantages of ADR in protecting confidential information varyfrom technique to technique.

b. Understanding those variations will go a long way in helping. businesspeople and their counsel select and implement an appropriate process.

2. Adjudicative Alternatives to Litigation. In adjudicative alternatives to formallitigation, e.g:, arbitration, proceedings through filing of a final arbitralaward may be confidential. This protects the parties vis-a-vis the generalpublic, but it does not inherently protect one party's confidential informa­tion from disclosure to another party to the proceeding. On this score, astipulation between the parties,or an order from the tribunal, or even anorder from a court in an ancillary proceeding will be necessary.

a. Whether such an order may be issued by an arbitral tribunal is not acertainty. The parties must be fully aware not only of the institutionalrules under which they are arbitrating, but also of the arbitral law gov­erning the proceeding. For example, for institutional rules:

1. Article 52 of the WIPO Arbitration Rtiles provides for a relativelyelaborate procedure for protecting confidential information, includingin exceptional circumstances the appointment of a "confidentiality ad­visor." Also, Articles 73-76 provide for the confidential treatment of allaspects of an arbitration. .

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ii. Rule 17 of the CPR Rules For Non-Administered Arbitration of Pat­ent and Trade Secret Disputes contains detailed provisions regardingconfidentiality, including authorizing the tribunal to issue an appropri­ate orqer (Rule 17.6).

iii. Rule 33 of the AAA Patent Arbitration Rules provides only in terseterms for the issuance by the arbitrator of an order to protect confiden­tial information.

iv. Rule 34 of the AAA Commercial Arbitration Rules app<!ars to autho­rize the arbitrator to issue an award "to safeguard the property that isthe subject matter of the arbitration."

v. The current ICC Rules of Conciliation and Arbitration are silent onthis subject, although they may soon be revised in this respect as wellas others.

b. In addition, regardless of the provisions of the applicable rules, thecultural or experiential background of the arbitral tribunal may playadecisive role in resolving the question Of how far the tribunal will go i.nendorsing a protective order. This is especially true in lllulti-n.ationaland multi-cultural arbitration.

c. Importantly, post-arbitral proceedings often leave otherwise protectedinformation vulnerable as far as public scrutiny is concerned.

i. This is true because to enforce an arbitral award against a recalcitrantloser it is necessary to go to court to seek a judgment on the award. Indoing so, the record of the arbitral proc<!eding,. especially the c"'1rditself and often the entire record, may not be under seal.

ii. Specific steps must be taken to seek protection from the court inwhich enforcement (or vacatur) is sought. This is not always available.

d. Of special interest with respect to patents is section 294(d) and (e) ofthe U.S. Patent Act (35 U.S.c. §294(d) and (e». Section 294(d) and (e)require that an award in an arbitration pursuant to section 294 is notenforceable until the award has been filed with the Commissioner ofPatents. This, of course, is not consistent with a desire to maintainconfidentiality.

e. Also of interest is 35 U.s.c. §294(c). That section provides, subject toagreement by the parties, for modification of an arbitral award 0' - .,

ent validity, enforceability or infringement in the event of a subsequentjudgment of invalidity or unenforceability with respect to the samepatent. Thus, a court is charged under section 294(c) with the duty ofexamining the original arbitral award for purposes of determiningwhether or not it ought to be set aside. This, of course, provides fur­ther opportunity for public scrutiny of information the parties thoughtwas secure in the original arbitration.

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3. Also of concern is the prospect of a third party's relying on an ea;:lieraward in an arbitration of a United. States patent for its estoppel effectunder Blonder-Tongue Laboratories v. University of Illinois Foundation, 402U.S. 313 (1971).

a. Additionally, a party to the earlier arbitration may rely on an arbitralaward for its res judicata effect in later litigation.

b. Here, also, you must ask to what extent the earlier arbitration recordand arbitral award are entitled to protection.

4. Non-Adjudicative Alternatives. With non-adjudicative alternatives to litiga­tion, the parties have far more control over their problem, its solution,and how the procedure of solving their problem will be formulated. Criti­cally important is the fact that no public. tribunal need playa role in craft­ing the solution. The solution is customarily in the form of a private agree­ment between or among the parties. Usually, it needs no courtendorsement (although in the event of a breach, intervention by a courtmay be required). An exception is, of course, a dispute embracing anti­trust or other public interest issues that may require court review. But thisdoes not mean that all confidential information of one party or anotherthat might have been of. record in a litigation need be reviewed by thecourt or otherwise made available to the public in connection with judicialconsideration of a settlement agreement.

a. Normally, mnon-adjudicative procedures (e.g., mediation), all discus­sions between the parties, and among the parties and the neutral, areregarded as privileged, i.e. within the protection afforded settlementdiscussions. Also, frequently, the parties need not share with one an­other their confidential business information, except with respect tospecific issues,

1997 I:--:TELLECTCAL PROPERTY AGREEMENTS ;;

b. Thus, non-adjudicative proceedings are much less likely to be the sub­ject of public scrutiny, and are less likely to put confidential informa­tion on the table.

5. Consider some specific situations.

a. Conventional Mediation. Customarily, all communications between theparties and among the parties and the mediator are confidential in me­diation. This includes information shared in joint caucuses and trans­mitted to the neutral in private caucuses.

i. Ordinarily, the mediator and the parties expressly agree at the outsetof the mediation that all communications will be confidential, unlessexpressly agreed otherwise. Also, various organizations' mediationrules provide for confidentiality. (E.g., Articles 14-17 of the WIPO Me­diation Rules, Section A.7 and 8 of the CPR Model Procedure for Medi­ation of Business Disputes, Rules 11, 12 and 1.3 of the AAA CommercialMediation Rules, and Article 11 of the ICC Rules of Optional Concilia-tion.) .

ii. The normal aspects of the mediation process go a long way towardinsulating a party's confidential information from disclosure to thirdparties. However, it may not go all the way. If mediation results in aresolution ota dispute, the resolution and the factors that led up to itmay be the subject of legitimate discovery in ensuing litigation. But thefact that this non-adjudicative process occurred is not in and of itselflikely to permit a third party to penetrate the immunity that wouldotherwise protect a party's confidential information.

b. Court-Annexed Non-Adjudicative Proceedings. Court-annexed mediationand neutral evaluation proceed in the same manner as voluntary medi­ation and neutral evaluation. The same safeguards obtain. Indeed, thejudge assigned to the case may not even know the mediator's or neu­tral's identity (but when the judge orders that a specific neutral beappointed, the judge will of course know the neutral's identity). In anyevent, the substance of what transpires during a mediation or evalua­tion is confidential and is not disclosed to the judge, except to theextent of advising the judge that the proceeding occurred, whether ornot the parties participated and the result.

c. Summary Jury Trials. In summary jury trials, the problem of confiden­tiality is more complex because of the presence of the jury and the

56 All-ABA COURSE MATERIALS JOURNAL JUNE

courtroom staff. Thus, this ADR technique cannot be easily viewed asconsistent with the protection of confidential information.

d. Ex Pilrle Submissio/ls to a Neutral.. In actual practice, whelleach party to atrade secret misappropriation and patent infringement dispute has notwanted the other party to continue to be exposed to fresh proprietaryinformation of the party, the parties and the neutral (the author) haveworked out a procedure whereby the neutral received ex parte submis­sions from each party on a confidential basis, with neither party beingprivy to what the other party had submitted to the neutral. This in­cluded both oral and written submissions. CPR's Model Agreement forEx Parte Adjudication of Trade Secret Misappropriation and Patent Dis­putes is based on this predicate.

6. Interested Non-Parties. Often overlooked is the fact that many non-partiesmay have a legitimate interest in the existence of the dispute and its out­come, whether adjudicative or non-adjudicative.

a. Non-parties that may have a legitimate interest in the existencli of thedispute are:

i. Parent corporations, subsidiaries and divisions;

ii. Principal investors and potential investors;

iii. Indemnitors and insurers;

iv. Vendors and customers;

v. Partners;

vi. Lice lsors and licensees;

vii. Potential infringers;

viii. Government regulatory and taxing agencies;

ix. Creditors; and

x. Parties to similar disputes.

b. It is not difficult to envision one or more of those non-parties applyingto a court for access to an arbitration award, the underlying arbitration

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1997 INTELLECTUAL PROPERTY AGREEMENTS 57

record, or a settlement agreement resulting from a non-adjudicativeADR process. If the court grants the application, confidentiality may becompromised.

C. Arbitrability and Enf()rceabiIity in Arbitrati()n

1. In disputes concerning international commerce, arbitration has many ad­vantages. But arbitration is valuable only to the extent that the agreementto arbitrate can be implemented and the resulting award can be enfor~ed.

A . very important question in international commercial arbitration iswhether an arbitral award will be enforced in all relevant countries, in­cluding the site of the arbitration and countries other than the countrywhose legal system governed the proceedings and the resolution of sub­stantial issues.

2. The New York Convention. The New York Convention of 1958 provides thestructure to frame that question, but it does little to answer the questionwith respect to the arbitrability of intellectual property disputes-a" partic­ularly difficult problem.

a. The New York Convention establishes a unified legal framework for thefair and efficient settlement of disputes arising in international com­mercial relations. More than 100 countries are parties to the Conven­tion, including most important socialist and capitalist trading nationsand an increasing number of developing countries.

b. The New York Convention focuses on two essential elements of inter­national arbitration:

i. The enforcement of arbitration agreements and the enforceml'~' offoreign arbitral awards. It applies to arbitral awards rendered il' anycountry other than that of enforcement or otherwise not considereddomestic in the country in which enforcement is sought. New YorkConvention, Article 1(1). However, under Article V of the Convention,an appropriate court of a member country may deny recognition andenforcement of a foreign arbitral award.

ii. Article V sets out seven grounds for denying recognition and en­forcement of a foreign arbitral award. New York Convention, Article V.Two of those in Article V(2) are especially relevant to arbitration ofintellectual property disputes. Under Article V(2)(a) recognition and

58 ALI-ABA COURSE MATERIALS JOURl'AL JUNE

enforcement of an award may be refused by competent authority (i.e.,an appropriate court) in the country where recognition and enforce­ment are sought if that authority finds that the subject matter in (11S­

pute is not arbitrai:>le in the country•. Under Article V(2)(b), that author­ity may refuse recognition and enforcement of an award if that wouldbe contrary to the public policy of the country.

iii. It has been argued that an arbitral award that cannot be enforcedbecause of violation of public policy is also a matter that is not capableof arbitration under Article II. See, Mitsubishi Motors Corp. v. SolerChrysler-Plymouth Inc., 723 F.2d 155, 164 (1st Cir. 1983), rev'd in part, ;73U.S. 614 (1985). When the challenge is to the enforceability of theaward, the public policy ground is asserted after the arbitral award hasbeen rendered. Jay R. Sever, Comment, The Relaxation of Inarbitrabilityand Public Policy Checks on U. S. and Foreign Arbitration: Arbitration Out ofControl?, 65 Tul. L. Rev. 1661 (1991).

c. Article V(2) is relevant to intellectual property disputes because signifi­cant intellectual property rights are granted, sometimes after examina­tion, by public authorities. Even in countries where there is no exami­nation, such rights are nevertheless granted by a public authority.When intellectual property affords the owner the right to exclude thepublic from unauthorized use of the property, the intellectual propertyis manifestly imbued with the public interest.

i. Thus, Article V provides courts of member countries grounds torefuse to give effect to an agreement to arbitrate intellectual propertydisputes and to deny recognition and enforcement of a foreign arbitralaward resolving such disputes-at least when the intellectual propertyrights were granted by or registered with a governmental agency of themember cCL-01try.

ii. As a result, there is troublesome uncertainty about the arbitrabilityof disputes where intellectual property rights are at issue-especiallywhen different rights granted by different authorities are concerned.

3. Rights in Various Countries. New York convention countries have appliedArticle V(2). to intellectual property rights such as ownership, validity,infringement, and licensing with various .results.

a. Trade Secrets. Disputes regarding trade secrets, know-how or confiden­tial information are proper subject matter for arbitration in virtually all

1997 fNTELLECTCAL PROPERTY AGREEMENTS 59

member countries. Ordinarily, these rights do not .arise out of publicregistration or examination.

i. These disputes are usually private in nature, arising from breach ofcontract or breach of a duty of confidentiality between private parties.

ii. However, if injunctive relief is sought in a trade secret action, as isoften the case, the public interest will typically be involved. In thissituation, parties to the dispute must be informed as to the propriety ofan arbitration tribunal awarding that relief-both in the country of thearbitration and in countries where a party may. wish to enforce theaward.

b. Licensing. Generally, disputes affecting licensing or other contract rightsin which only damages are claimed may be referred to arbitration. Con­tractual disputes between parties to an intellectual property agreementare typically arbitrable provided that resolution of the dispute does notaffect third parties. Questions of interpretation of an agreement, breachof the agreement, and amounts owed under the agreement are arbitra­ble. This includes most disputes that may arise in relation to the licens­ing or other transfer of intellectual property rights, including royaltydisputes, between private parties. However, resolution of a disputeover the validity of a licensed patent, for example, may not be ;u-bitra­ble in many countries, .and thus an award purporting to resolve suchan issue may not be enforceable.

i. A licensing dispute to which a government is aparty requires specialconsideration. Concern for the public interest may be heightened whena government is on one side of a dispute.

ii. Finally, when injunctive relief is sought against a licensee in default,the public interest (as in the trade secret situation) may affect botharbitrability and enforceability.

c. Ownership. When an intellectual property right is granted by or regis­tered with a public authority, questions concerning ownership of thatright may embrace public interest issues. Thus, the arbitrability ofquestions concerning ownership of an intellectual property right hasbeen treated differently in different countries. When the intellectualproperty right at issue is not registered with a public authority, theissue of ownership may be arbitrable if it is not otherwise affected withthe public interest.

60 ALI-ABA COURSE MATERIALS JOlJRl'AL JUM

d. Scope and Infringement of-Patents and Trademarks. Questions concerningscope and infringem'_"L of intellectual property rights such as patentsand trademarks often include matters extending beyond the privateinterests of the parties to the dispute. Thus, in many countries, dis­putes over the scope and infringement of a patent or trademark are notproper subjects of arbitration. Disputes over the scope and infringe­ment of intellectual property rights that are not registered with a publicauthority are arbitrable if the public interest or public policy does notmandate otherwise.

e. Validity and Enforceability of Patents and Trademarks. Questions regardingthe validity or enforceability of an intellectual property right such as apatent or a trademark is a matter. in which the public has an interest.When a competent court decides that a patent or trademark is invalidor unenforceable, the pertinent official register reflects that d~cision toprovide notice to the interested segment of the public.

4. Suggested Contract IJlnguage. In countries where the arbitrability of'intellec­tual property issues is limited, not favored, or otherwise in doubt, theprospects of enforcing an award that in fact determines only private, com­mercial rights between the parties, notwithstanding an underlying.intel­lectual property dispute, may be enhanced if no purported determination6f any potentially non-arbitrable issue is made by the arbitrator. Accord­ingly, the contract language appended to this outline may increase thelikelihood of enforcing arbitral awards relating to intellectual propertyrights.

D. Conclusion

1. With rore"lght and care, you can adopt an appropriate ADR procedurethat will not only achieve the primary goal of expeditious and fair resolu­tion of a dispute, but also provide reasonable assurances of protectingconfidential information.

2. What that procedure should be poses an interesting challenge that de­serves your full attention.

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APPENDIXModel Intellectual Property Dispute Resolution Clause

1. This dispute is a private commercial dispute between the parties andaffects international commerce. [Pre-dispute clause: Any dispute arisinghereunder is likely to be a private commercial dispute between the partiesand to affect international commerce.]

2. The parties agree that this dispute and all aspects of this dispute shallbe resolved by binding arbitration ~Jlely for the rights of the parties v;ithrespect to one another.

3. If the determination of this dispute necessitates the Arbitrator's consid­eration of any issue relevant to the validity, enforceability, or infringementof any [IP right] of any party with respect to another party, the Arbitratorshall have the authority to consider all such issues and to express a viewon all such issues. The parties expressly agree that the Arbitrator shall nothave authority to declare any such [IP right] valid or not valid, enforce­able, or not enforceable or infringed or not infringed, provided, however,that the Arbitrator may express a non-binding view for the parties onwhether in the Arbitrator's view a court or other government agency ofcompetent jurisdiction would uphold the validity, enforceability or in­fringement of any such [IP right]. The Arbitrator shall specify[may state]the Arbitrator's reasons underlying that view. However, neither the viewof nor the statement of reasons by the Arbitrator shall be regarded by anyparty or any other entity as a declaration of validity or invalidity, enforce­ability or unenforceability, or infringement or non-infringement of anysuch [IP right].

4. The Arbitrator's award:

a. Shall state what acts, if any, a party mayor may not undertake withrespect to any other party;

b. Shall be final, binding and effective only between or among theparties;

c. Shall not be appealable by any party; and

d. Shall not be regarded or asserted by any party as having any effecton any person or entity not a party.

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5. The parties expressly agree that judgment based on the Arbitrator's awardmay be entered in favor of, or against, any party in any jurisdiction that tj-.oArbitrator determines to be appropriate under the circumstances, and eachparty against whom any such judgment may be entered hereby agrees to andshall make itself subject to the jurisdiction of any court in which that judg­ment is entered.

6. The parties agree to incorporate the terms of the award into [an underlyingor related technology transfer, license, etc. agreement] as a binding amend­ment to the agreement and enforceable as such, effective as of the date of theaward.

ARBITRATION AND INTELLECTUAL PROPERTY DISPUTESDavid W. PlantFish & Neave

l,ew York, New YorkJune 1996

L INTRODUCTION

Arbitration is an adjudicative process for resolving disputes. In lieu ofa

judge or jury in a court room, one or more (usually, three) private citizens selected to

serve as the arbitral tribunal receive evidence and hear argument in a conference room or

similar venue, and render a decision, viz. the award.

Arbitration maybe binding or non-binding. Non-binding arbitration, while

adjudicative insofar as the specific arbitration proceeding is concerned, may be plUt of a

larger non-adjudicative process. Arbitration usually is the result of an agreement between

the parties, but it may also stem from an initiative by a court. (Courts usually order.only

non-binding arbitration.) Arbitration may be administered by an instirution and subject to

the instirution'srules,or it maybe administered by the parties themselves subject to rules

the parties create, or it may reflect elements of both. Even in institutionally administered

arbitrations, it is nt'l unusual for the parties and the arbitrator to agree to depart from the

administrative institution's published rules.

An arbitrator's decision is embodied in an award. If a party is concerned

about collateral estoppel effects of a binding arbitral award or other adverse commercial

effects (e.g., n:vealing confidential information or providing a road map as to how not to

infringe), a reasoned award may not be desired. Also, conventional wisdom in the United

© David W. Plant 1996

APPENDIX D

States suggests that a reasoned award may be more susceptible to modification or

vacation by a court than a bare "win-lose" award.

Because arbitration is usually the product of a:: agreement between the

parties (especially, binding arbitration), the parties can set the course of the proceedings,

agree upon governing law and applicable rules, specifY issues, fix time limits and defme

the scope of the arbitrators' authority. A full understanding by counsel and client, and

the arbitrator, of these dimensions and their implications is necessary to the efficient,

expeditious and equitable use of arbitration.

The right to appeal a binding arbitration award is severely limited by

legislation and by judicial opinion. Under some circumstances in the United States, that

right may be modified by the parties, -- e.g., enlarged so that a court or another tribunal

may perform a more typical role in ascertaining whether an arbitratol"s fmdings offact

are clearly erroneous or conclusions oflaw are correct.

A fundamental requisite of arbitration is a seasoned arbitrator, available

when needed, willing and able to move the proceedings forward, even-handed, and

dedicated to efficiency and fairness. Arbitration has sometimes received baa press,

occasionally because an arbitrator appeared to split the baby (an exaggerated impression

in many cases). But amore severe drawback may be an arbitrator's permitting the

proceeding to expand and to absorb as much time, energy and money as the complel'

litigation it was expected to supplant (a matter of substantial concern ami severe

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(consequence). Fortunately, this result is not at all inevitable or even likely if the

arbitrator is selected with care.

Arbitrationhas proved to he practicable,·and·efficiently and effectively so,

in resolving intellectual property disputes. It has been utilized in lieu of litigation world­

wide, and in the United States, in lieu of Patent Office adjudication. It can continue to

work, especially if counsel and clients recognize that arbitration not only can be, but

should be, tailored to fit their specific needs.

II. WHEN IS ARBITRATION APPROPRIATE?

Arbitration of intellectual property disputes is appropriate under many

circumstances. They include licensor-licensee disputes, joint venture disputes,

technology transfer disputes, infringement disputes and the like. This is true whether the

arbitration is binding or non-binding.

Arbitration is not suitable in counterfeit situations or other circumstances

where immediate injunctive relief is needed, or in situations where a legal precedent is

necessary, or where other strategic considerations compel litigation.

In a domestic situation, the local courts may be the preferred recourse and

may be wholly effective. However, in an international situation, local courts mayor may

not be available, and if available, judgments they render may not be enforceable as a

practical matter.

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It is worthy of note that the Wodd Intellectual Property Organization's

Arbitration and Mediation Centre in Geneva is currently circulating for comment draft

rules intended to provide for immediate (i.e. "24 hour") interim relief in binding

arbitration of intellectual property disputes. Other arbitration institutions are also

considering this issue. It is likely that the WIPO rules will be in place in 1997. What is

not clear is whether or not they will be utilized, and if so, whether or not they prove to be

practicable. Clients and counsel should keep an eye on developments on this front and

give thorough consideration to utilizing the WIPO immediate interim relief procedure in

situations where it may be efficacious. Even while promulgation of the WIPO rules is

pending, clients and counsel can use the proposed rules as a model for their own

agreement providing for immediate interim relief.

In binding arbitration of international intellectual property disputes,

attention must be paid to whether or not the subject matter to be arbitrated is indeed.

arbitrable,. and to whether or not an arbitral award with respect to that subject matter will

be enforceable in relevant jurisdictions. In the United States, statutoI)' authority permits

binding arbitration of virtually all issues relating to United States patents (35 U.S.c.

§ 294; also, § 135(d». There are exceptions, but they are rare -- although the parties

themselves may agree to exclude certain issues from the binding arbitration. Judicial

opinion in the United States has assured that all other intellectual property issues(e.g.

trade mark, copyright, trade secret) are also the proper subject of binding arbitration.

However, such overall authorization of binding arbitration of all intellectual property

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issues is plainly not a universal plienomenon. Accordingly, clients and counsel must be

fully informed as to t1ie law and t1iepublic policy in relevant jurisdictions regarding

arbitrability of intellectual property issues t1iatmay, or in fact do, confront t1iem.

Thus, absent compelling commercial Circumstances (e.g. t1ie need for

inunediate injunctive relief) or legal barriers (e.g. patent validity is not arbitrable in a

relevant jurisdiction), arbitration is abundantly appropriate in connection witli intellectual

property disputes. Among its virtues, is t1ie ability of t1ie parties to select t1ie arbitral

tribunal, t1ie arbitral rules under whicli t1iey will proceed, t1ie schedule on which t1iey will

proceed, t1ie venue for t1ie proceedings, t1ie issues to be arbitrated, t1ie power and

autliority of t1ie arbitrator and post-arbitration procedures.

Also, t1ie New York Convention (The Convention on t1ie Recognition and

Eriforcement of Foreign Arbitral Awards, June 10, 1958,21 V.S.T. 2517, TJ.A.S. No.

6997,330 V.N.T.S. 38) establishes a unified legal framework for t1ie fair and efficient

settlement of disputes arising in international commercial relations. Approximately 120

countries are signatories to the New York Convention. The Convention provides a

vehicle for enfofCI' Igbinding arbitral awards that court judgments do not enjoy.

Accordingly, it is attractive for nationals ofsignatory countries to arbitrate ratlier t1ian

litigate international commercial disputes, because (assuming arbitrability and

enforceability in t1ie relevant jurisdictions) the arbitral award may be readily enforced in

signatory jurisdictions in addition to the jurisdiction in which the award is rendered.

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Lastly, arbitration can and should be considered both before an intellectual

property dispute matures and after the dispute matures. Arbitration clauses in agreements

relating to intellectual woperty transactions are commonplace, especially in international

transactions. And arbitration after a dispute arises, if properly designed and conducted, is

often a salutary way to resolve differences.

III. SOME CONSIDERATIONS WITH RESPECT TO ARBITRATION CLAUSES

Arbitration clauses in international commercial contracts, or in domestic

contracts, relating to intellectual property matters are typically among the last to be

considered, negotiated and agreed upon. Accordingly, such clauses often s;iIffer from

short shrift. While an arbitration clause ought not to be a deal breaker, a thorough

understanding of arbitration and its applicability to the potential dispute can enhance the

prospects of settling on an arbitration clause that effectively leads to resolution of the

potential dispute with a minimum of ancillary proceedings and a maximum of satisfaction

(at least with the proceeding itself, ifnot -- from the loser's perspective -- the outcome).

Post-dispute arbitration agreementsstand in vivid contrast to p' ~-dispute

arbitration clauses in agreements with respect to which dispute resolution is a tertiary

concern. In post-dispute situations, the pIimary object of the agreement is to fashion a

workable dispute resolution mechanism. However, because the emotional environment

may be super charged as result of the dispute having matured, negotiatip.g a post-dispute

clause carIies difficulties of its own.

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In any event, clients and counsel should have in mind points of substantial

significance when negotiating an arbitration clause, whether post-dispute or pre-dispute.

Some ofthose pomtsare referred to below,primarily in connection with binding

arbitration.

First, what rules are to govern the proceeding? This is among the most

important considerations, because in pre-dispute clauses there isa tendency to use a

boiler plate clause that leaves to specified institutional rules the entire burden ofshaping

the procedure--from commencement of the arbitration through final award. This may be

entirely satisfactory in some circumstances,· but clients and counsel. should be thoroughly

familiar with the rules invoked and thoroughly aware of what they are agre~ing to.

Second, should the arbitration be administered by an arbitral institution?

Should it be ad hoc? Should it be a hybrid? For the less sophisticated users,

administered arbitrations probably serve useful functions. For the more sophisticated

users, it may be more appropriate for clients and counsel to fashion their own procedure,

rules, schedules and the like.

Third, What issues are to be resolved by the arbitral tribunal'! It is

especially important to understand whether the arbitral clause is confined to contract

issues relating only to breach of the contract in issue, or whether the clause is framed so

as to embrace all issues arising out of any transaction related to the contract -- including

tort causes of action. It may also be salutary to give thought to whether the dispute can

be resolved by arbitrating fewer than all possible issues, thlls focussing on a specified,

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dispositive issue requiring less time and less expense for resolution than an all-out arbitral

war would engender.

Fourth, how many arbitrators should there be and who should they be? A

seasoned, dedicated, even-handed, available tribunal is critical to the success of the

prol:ess. Thus, clients and counsel should consider assuming full control of the selection

of arbitrators, leaving to. an institution or other entity the power to select only in the event

of intractable disagreement between the parties. Indeed, as the author's own experience

confIrms, selection of the arbitrators can be the wbject of a separate mediation process

where necessary (e.g. two party appointed arbitrators can mediate with clients and

counsel the selection of the chair). On this score, it is important to anticipate the

difficulties posed by multiple party arbitration and the appointment of party appointed

arbitrators. The parties should agree as to the alignment of groups ofparties for purposes

of selecting party-appointed arbitrators, or if agreement is not possible, leave appointment

of all arbitrators to an arbitral institution.

Fifth, are party appointed arbitrators to be neutral and independent? In

international commercial arbitration, the custom is that all arbitrators are neutral and

independent of the appointing paIiy. Of course, there are exceptions. Also, in domestic

arbitration in the United States, it may be perfectly acceptable, indeed expected, for a

party appointed arbitrator to act as an .advocate for the appointing party. Thus, clients

and counsel must be veryclear on the ground rules that will govern conduct of party

appointed arbitrators. This begins with the selectioi1 prOcess and continues through

8

rendering of the fmal award. For example, candidates for appointment by a party must be

very circumspect in pre-appointment interviews. And after appointment, the arbitrator

and all others concerned lllilstbe very cleat on the party appointed arbitrators rights and

obligations vis-a-vis the appointing party.

Sixth, where is the arbitration to be held? A country whose laws and

practices are hospitable to arbitration should be selected as the situs. Cultural

considerations may dictate situating the arbitration in a country different from any

country of which a party is a national. This may pose nice issues with respect to Illulti­

national corporations. Often, the site of the arbitration it is simply a matter of

convenience for the parties, witnesses and arbitrators (and sometimes, counsel). The law

of the situs is not to be overlooked. If the arbin:ation clause or agreement is silent as to

governing arbitral law, the law of the situs will usually control.

Seventh, what will the schedule be, and may it be modified? There should

be a schedule. If there is none, the arbitration may unexpectedly extend far into the

future. Some arbitral institutions and some institutional rules specify the schedule.

Others are silent. Typically, it is up to the parties -- arbitration is a crcaiU,~· of agreement

-- and the parties can fix and can modify the schedule. Not only the parties but also the

arbitral tribunal should agree to the schedule. An open-ended approach, especially

without written commitment from the tribunal, may lead to interminable proceedings,

uncontrollable expense, and justified frustration on the parts of the parties.

9

Eighth, what infonnation will be exchanged before the evidentiary hearing?

United States counsel are accustomed to extensive discovery. Counsel in other countries

are not The parties and their counsel shquld l!nderstand fulIv what will occur on this

score, and what the consequences will be of failure to provide infonnation called for.

One consequence may be that the arbitral tribunal will draw inferences adverse to a party

that fails to produce such infonnation. Also, the clients and counsel should understand

that the applicable arbitral law, the .composition of the tribunal and the customs of the

jurisdictions in which counsel nonnalIy practice alI may lend a specific and special

character to arbitral proceedings. That is, the same arbitration under the same arbitral

rules may be entirely different proceduralIy, depending on the composition ..of the tribunal

and the backgrounds of counsel. For example,a tribunal with Swiss national as chair

may be far less generous in pennitting pre-hearing discovery than a tribunal with an

American chair.

Ninth, what will happen at the evidentiary hearing? Clients and counsel

should understand that in some proceedings direct testimony is taken only on written

statement, folIowpd 'ly cross-examination by counsel, or folIowed only by inquislllon by

thetribunal. They should understand also how much time will be alIocated to the

evidentiary hearing, and also whether pre-hearing briefs, post"hearing briefs or oral

argument will be pennitted.

Tenth, what about confidentiality? The prevailing view seems to be that

arbitration proceedings, the record, the award and even the existence of the proceeding

10

(

itself are confidential. This view is not altogether sound. Arbitration proceedings are

usually private. The parties can enter into agreements to preserve the confidential

character 0fproprietary itUormation that one party may disclose to another. A tribunal

may refuse to order disclosure of one party's confidential information to another party.

But what about the outside world if the award is to be taken into court to be enforced? It

is entirely likely that the award will be a matter ofpublic record. (Under 35 U.S.C.

§ 294(d) and (e), an award in an arbitration under Section 294 is not enforceable until it is

deposited with the United State Patent and Trademark Office.) And what about interested

non-parties? Non-party licensees, competitors, vendors, customers and future litigants

may have a legitimate interest in learning the outcome of the arbitration. So may

government agencies (e.g. antitrust authorities, tax authorities, other regulatory

authorities), indemnitors, private investors and related companies, such as parents. In

short, clients and counsel can take steps to insure protection of confidential information

between the parties, but they should not count on the award or the record of the

proceeding remaining out of the public' 5 reach.

Eleventh, what remedies will be available? Those who have followed

reported judicial opinions in the United States will know that there is a vigorous debate in

some of the 50 states as to whether an arbitral tribunal has power to award punitive

damages. This question arises in other jurisdictions also. But what are punitive

damages? In the United States, simply because damages may be increased (typically, up

to three times), it does not follow that the increased damages are punitive. The United

II

States Supreme Court has emphasized the compensating function of increased damages in

antitrust matters, over their punitive and deterrent function. Also, depending on the

United States inteliectual property right in question, enhanced damages mayor may not

be regarded as punitive (e.g. increased damages under the patent act are punitive;

increased damages are awarded in trademark cases under the Lanham Apt only ifnot

punitive; enhanced statutory damages in copyrightinfringement actions embody both

components). In addition, clients and counsel must be alert to the forms of relief that

mayor may not be available under specific rules or specific governing law. Monetary

damages may have to be awarded in a specific currency. Only limited forms of equitable

relief (e.g. permanent injunctions, specific performance) may be available.. '. . ...

Twelfth, what form should the award take? In the United States, many

binding arbitration awards have been naked win-lose awards, without reasons. In

international arbitration, a reasoned award is more likely to be rendered. In complex

intellectual property disputes, the parties may want a reasoned award. However, there are

circumstances in which a reasoned award may be manifestly undesirable. For example, a

patent owner may not want the reasoned award to provide a roadmap for designing a non-

infringing product, neither party may want to risk collateral estoppel effects of a reasoned

awarded, and neither party may want the award to reveal confidential information, if

through judicial enforcement proceedings or otherwise it becomes available to non-

parties.

12

Thirteenth, what other elements of an arbitration might be addressed in an

arbitration clause or agreement? The answer is any number. Examples are the language

of the arbitration, governing law on the merits, governing arbitral law, specific procedures

for enforcement of the award, specific procedures for seeking relief from the award,

recourse the parties may have if an arbitrator does not participate, the consequences of a

party's failUre to appear at a hearing, etc.

IV. IS ARBITRATION UTILIZED INTNTELLECTUAL PROPERTY DISPUTES?

The answer is an unqualified yes.

Clearly, litigation is the preferred, and sometimes only,route forresolving

intellectual propertY disputes. Also, other ADRmechanisms, such as mediation, are

becoming increasingly attractive. Nevertheless, both administered and ad hoc arbitration

have been, and are being, utilized.

It is difficult to assess the number of intellectual propertY disputes that are

the subject ofarbitration. One reason is the confidentiality that shrouds such

proceedings--at least up to a point. Another reason is the difficulty arbiu" I mstitutions

experience in attempting to classify arbitrations initiated under their auspices.

Notwithstanding this situation, it seems fairto say that substantial numbers of intellectual

propertY disputes have been the subject ofarbitration proceedings in recent years. The

number is likely to be significantly larger than institutional statistics would suggest,

13

because intellectual property issues are often a component of international commercial

disputes that are not classified by institutions as "intellectual property" disputes.

This returns us to the point made in Section II. regardingarbitrability and

unenforceability. Even though a dispute being arbitrated appears to include an

intellectual property issue as a minor component, clients and counsel sh()uld be aware of

the potential impact on the enforceability of the award overall. For example, .if the

arbitral tribunal rules -- as a part of a larger award -- that a government granted

intellectual property right (e.g. a patent, a registered trademark) is not valid or otherwise

is not enforceable, all concerned must be alert to the impacton the award if that

intellectual property ruling is held by a court to have been outside the power of the

arbitrators under the arbitral law governing the arbitration, or is held bya court to be

unenforceable in. the jurisdiction in which enforcement of the award is attempted.

V. WHAT SERVICES DO VARIOUS INSTITUTIONS OFFER?

We consider here two categories of institution: (I) ADR providers and (2)

intellectual property llrganizations.

ADR providers in the United States include organizations such as the

American Arbitration Association, CPR Institute for Dispute Resolution and

JAMSfEndispute, and elsewhere in the world, such organizations as the International

Chamber of Commerce in Paris, the London Court oOnternationalArbitration, Chartered

Institute of Arbitrators and Centre For Dispute Resolution in London, the British

14

,

\

Columbia International Commercial Arbitration Center in Vancouver, and others such as

the Stockholm Chamber of Commerce, China International Economic and Trade

Arbitration Commission, and International Arbitral Cenlre oflheFederai Economic

Chamber in Vienna. Among these organizations, only the AAA and CPR seem to have

promulgated rules, or model rules, directed specifically at arbitration of intellectual

property disputes (e.g. AAA Patent Arbitration Rules, CPR Rules for Non-Administered

Arbitration of Patentand Trade Secret Disputes, CPR Model Agreement for Ex Parte·

Adjudication ofTrade Secret Misappropriation And/Or Patent Disputes). This is not

necessarily of high moment. All ADR providers are aware of and are consideringspecial

issues/associated with intellectual property disputes and are prepared to provide

arbitration services of such disputes under one set of their rules or another. Even with

orgaruzations like the AAAand CPR, many intellectual property disputes are arbitrated

under more general rules such as the AAA Commercial Arbitration Rules, the AAA

International Arbitration Rules, and the CPR Non-Administered Arbitration Rules.

The CPR Model Agreement for Ex Parte Adjudication of Trade Secret

Misappropriation AnctlOr Patent Disputes is of especial interest in conneclion with non­

binding arbitration of disputes iIi which each party desires to insulate its proprietary

information from the other party. This model agreement may illustrate useful procedures

not typically employed, but nevertheless of real practicability.

As [or intellectual property organizations, the World IntellectulilProperty

Organization seems to be the only organization to have established an arbitration and

15

mediation center and promulgated rules for the purpose of providing ADR services

specifically for the intellectual property community. The WIPO Arbitration and

Mediation Centre came on line in October 1994. Its director, Dr. Francis Guny, has

assembled a panel ofpotential neutrals numbering over 400 persons from around the

world. While at this writing WIPO Arbitration Rules may not have governed any specific

proceeding, those rules have been incorporated into dispute resolution clauses in

international agreements and will in due course be applied. At the same time, the WIPO

Centre has consulted with and provided informal services to many disputants around the

world.

Other intelle~tual property organizations have assembled lists of potential

neutrals. For example, in conjunction with CPR, the International Trademark Association

has developed a panel of potential neutrals with expertise in trademark law and related

subjects. And the American Intellectual Property Law Association has assembled a list of

more than 100 potential neutrals, together with background information about each.

Neither the CPRIINTA panel nor the AIPLA list is meant to imply that either !NTA or

AIPLA will themselves administer arbitrations.

VI. CONCLUSION

We have skimmed the surface in this introductory piece, leaving many

i~sues urunentioned and many questions unanswered.

16

But perhaps enough has been written to suggest that arbitration, if well

designed and properly implemented, is indeed alive and well as an intellectual property

dispute resolution mechanism. On those occasions where arbitration has gone astray

procedurally, the blame should not be placed on any inherent unsuitability of arbitration

in this field. Rather, other circumstances have led to the bad press arbitration sometimes

receives -- albeit circumstances that may sometimes have been in the parties' control.

Arbitration, as we have seen, is the product of the parties' agreement. The

parties are free to design a procedure that will prove to be satisfactory. Whether or not

they realize that goal is a function of the thorou!!hness of their understanding of the

nuances and their willingness to address those nuances in their arbitration clause or their

arbitration agreement, and thento implement that clause or agreement in a rational way.

17

35 U.S.C. § 294. Voluntary arbitration

(a) A contract involving a patent or anyright under a patent may contain a provisionrequiring arbitration of any dispute relating topatent validity or infringement arising under thecontract. In the absence of such a provision, theparties to an existing patent validity orinfringement dispute may agree in writing tosettle such dispute by arbitration. Any suchprovision or agreement shall be valid,irrevocable, and enforceable, except for anygrounds that exist at law or in equity forrevocation of a contract.

(b) Arbitration of such disputes, awards byarbitrators and confirmation of awards shall begoverned by title 9, United States Code, to theextent such title is not inconsistent with thissection. In any such arbitration proceeding, thedefenses provided for under section 282 of thistitle shall be considered by the arbitrator ifraised by any party to the proceeding.

(c) An award by an arbitrator shall be finaland binding between the parties to the arbitrationbut shall have no force or effect on any otherperson. The parties to an arbitration may agreethat in the event a patent which is the subjectmatter of an award is subsequently determined tobe invalid or unenforceable in a judgment renderedby a court to competent jurisdiction from which noappeal can or has been taken, such award may bemodified by any court of competent jurisdictionupon application by any party to the arbitration.Any such modification shall govern the rights andobligations between such parties from the date ofsuch modification.

(d) When an award is made by an arbitrator,the patentee, his assignee or licensee shall givenotice thereof in writing to the Commissioner.There shall be a separate notice prepared for eachpatent involved in such proceeding. Such noticeshall set forth the names and addresses of theparties, the name of the inventor, and the name ofthe patent owner, shall designate the number ofthe patent, and shall contain a copy of the award.If a~ award is modified by a court, the partyrequesting such modification shall give notice ofsuch modification to the Commissioner. TheCommissioner shall, upon receipt of either notice,enter the same in the record of the prosecution ofsuch patent. If the required notice is not filed

APPENDIX E

with the Commissioner, any party to the proceedingmay provide such notice to the Commissioner.

(e) The award shall be unenforceable untilthe notic r --,quired by ~ubsection (d) is receivedby the Commissioner.

35 U.S.C. § 135. Interferences

(d) Parties to a patent interference, withinsuch time as may be specified by the commissionerby regulation, may determine such contest or anyaspecc thereof by arbitration. Such arbitrationshall be governed by the provisions of title 9 tothe extent such title is not inconsistent withthis section. The parties shall give notice ofany arbitration award to the Commissioner, andsuch award shall, as between the parties to thearbitration, be dispositive of the issues to whichit relates. The arbitration award shall beunenforceable until such notice is given. Nothingin this subsection shall preclude the Commissionerfrom determining patentability of the inventioninvolved in the interference.

~PillIDIXF

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WIPOWine Law Association

The Mecliation ProcessAnd Intellectual Property Disputes

David W. PlantFish & Neave

New York, New York1998

Mediation is a facilitated negotiation, in which a neutral (the mediator)attempts to assist the parties in finding their own solution to their own problem.

Copyright D.W. Plant, NY, NY 1998

APPENDIX G

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I. SIX PHASES OF THE MEDIATION PROCESS

A. Getting to the table.

B. Preparing fonhe process.

C Initial sessions.

I. First joint session.

2. First private session.

O. Subsequent sessions.

E. Closure, viz. "End Game".

F. Post-Mediation.

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II GETTING TO THE TABLE

A. Preparation

I . Know all parties' real interests and real needs.

2. Know your BATNA, and the other parties' BArNA's.

3. A dispute is an opportunity to create value.

4. Know the ADR menu.

5. Be creative; fit the process to the fuss.

6. Post-dispute more difficult than pre-dispute.

B. How to break the ice.

L Court rules.

2. Professional responsibility.

0 Clients' pledges and commitments.J.

4. Client's policy.

5. Common sense.

6. Who·)

a. Party to party.

b. Lawyer to lawyer.

c. Neutral good offices.

7. Your adversary must be your partner.

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IlL PREPARING FOR MEDIATION

A. The parties have agreed to (pre-dispute or post-dispute), or a Court hasordered (post-dispute), mediation.

B. The mediator.

1. Parties and counsel jointly select the mediator (desirable); or Courtor other institution selects the mediator (not desirable).

2. Know your mediator.

a. Reputation.

b. Some characteristics

c.

(I) Patient

(2) Diligent

(3) Sensitive

(4) Flexible

(5) Creative

(6) Trustworthy

(7) Authoritative

(8) Even-handed

Competence.

.(I) Subject matter.

(2) Process

(a) Experience.

(b) Training.

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d. Style.

(I) Facilitative.

(2) Pro-active and evaluative.

e. How does the mediator manage personal interaction?

f. Sources of information.

(I) Institutions.

(2) Colleagues.

C. The mediator communicates.

l. Joint telephone conference with counsel.

2. Emphasizes that whatever is in dispute, this is a problem to besolved as partners, not a war to be won as adversaries ..

3. Continues transformation of adversaries into partners.

a. Fundamental shi~ in viewpoint.

b. At least in formulating and proceeding through themediation process.

4. Explains process.

a. Process.

b. Journey.

c. Negotiation.

5. Is alert to semantic issues.

a. E.g. "binding" mediation.

b. E.g. mediator will decide what's right for the parties.

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6. Participants to negotiate in good faith and with candor.

7. Explain who must be present and their roles.

a. Parties -- principals; authority to settle.

b. Counsel-- counselors; not necessarily litigators.

c. Third parties -- insurers; indemnitors; partners.

8. Schedule.

9. Confidentiality.

10. Pre-session Submissions -- briefs.

a. Positions.

b. Real interests an-i ll~cds.

(I) BATNA

(2) Be creative and be objective.

(3) Do you need litigation?

(4) Is there a business relationship to be preser ,pd orcreated?

(5) Are there political reasons, internal or external,motivating settlement?

(6) Are ther, personal needs?

c. Understand and account for the other side's interests andneeds.

d. Look beyond the present dispute to overall relationships.

(1) Subject matter.

(2) Time.

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e. Assess the strengths and weaknesses of both sides'positions.

f Conduct an objective litigation risk analysis.

g. Include the few material exhibits.

h. ClarifY whether briefs are in confidence and ex parte tomediator, or are ~xchanged.

II . Court-annexed aspects.

a. Understand duties and responsibilities of the mediator.

b. Comply with the schedule.

c. Understand the information to be reported to the judge.

12. Mediator's fee.

13. Written agreement.

a. Deal with these and other issues.

b. Parties' consent to mediator.

D. Ethics -- Responsibilities of The Mediator

I. No conflicts of interest!

a. Actual.

b. Apparent.

c. Must immediately notifY of any change in situation.

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2. Rights and obligations of the mediator vis-a-vis the parties.

a. Past engagements.

b. Present engagements.

c. Future engagements

d. Firm's engagements

(I) CPR model agreement.

(2) Other Clauses.

e. Fees

(I) Hourly.

(2) Lump sum -- approximate value of case.

(3) Who pays? When?

f Power imbalance.

(1) Large v. small.

(2) Party represented by counsel v. pro se.

(3) Wealthy v. poor.

(4) Sophisticated v. unsophisticated.

(5) E~5tern v. Western.

. (6) European v. US.

g. Not judge.

h. Not a party's attorney.

I. Not party to a crime or fraud.

J. All information confidential.

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3. Immunity.

a. Suit.

b. Subpoena.

4. Mediator to manage process.

a. Substantive problem is the parties' problem to be solved bythe parties.

b. Mediator has to guide and keep on track the problemsolving process; does not solve the substantive problem.

c. May have to mediate re the mediation process.

5. Mediator as arbitrator.

a. This process.

b. Later dispute.

6. Arbitrator as mediator.

7. Mediator will withdraw.

a. If conflict of interest.

. b. If parties not participating in good faith.

c. If clear mediation will not be successful.

d. If mediator would be party to a crime or fraud.

E. Role of Counsel and Parties in Preparation.

1. Must understand mediation -- know what to expect.

a. The variations on the themes.

b. The pros & cons.

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2. Understand all counsel's and all parties' negotiating techniques.

a. Principled.

b. Scorched earth.

3. Beware misconceptions.

a. Mediator's power -- not a judge.

b. Injunction needed -- still can settle.

c. Intellectual property right invalid or unenforceable - still cansettle.

d. Intractable parties -- still can settle.

e. One party seeking discovery -- still can settle.

f. One party signaling weakness -- still can mediate fairly.

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IV. THE FIRST JOINT SESSION

A. Amenities.

I. Rooms.

2. Coffee.

, Telephones.J.

4. Meals.

5 The table.

6. Courthouse v. private office.

B. Introductions.

I. Everyone present.

2. Parties seated next to mediator; counsel not next to mediator.

3. First names.

a. Usually.

b. Eventually.

c. Even mediator.

C Mediator explains process.

Repeats essence of pre:iminary telephone conference.

2. Necessary because new participants, viz. the parties.

3. Emphasizes problem to be solved by parties working together.

4. ConfidentiaL

a. The process.

b. Mediator's notes.

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5. Off-the-record settlement discussion.

6. Mediator is neutral; no substantive judgment; no substantive power.

7. Mediator facilitates; not evaluates, unless jointly requested andappropriate.

8. Explains joint and private caucuses.

a. Emphasizes confidentiality.

b. Especially in private caucus.

9. Frankness and openness are requisites.

10. Good faith negotiations are required.

11. The principals (e.g. executives) must be prepared to participate.

12. Solutions to difficult problems call for creativity.

13. Ifcourt-annexed, court will not know what said by any party.

a. Mediator simply reports that parties met and settled or didnot settle.

b. If early neutral evaluation is combined with mediation,mediator/evaluator will report on discovery needed, forexample.

J4. Ground rules.

a. This is the parties' (more specifically, the principals')process.

b. Challenge positions, not persons.

c. Always focus on potential solution.

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d. The mediator will manage the process.

(1) Inttrruptions not be permitted.

(2) Each party may be asked to restate other party'sposition and other party's real interests and needs.

(3) Explore options; brainstorm without judgments.

D. Emotion

I. Can run deep.

a. Anger -- other party is unfair, immoral and vindictive.

b. Distrust -- other party is liar; has breached a contract; hasbetrayed a trust; has failed to pay.

c. Dislike -- personal animosity; can't stand to be in the sameroom.

d. Strategic -- for competitive purposes; anger as a negotiatingtactic.

2. Expressed in challenges to

a. Past and present positions.

b. Other principal's or counsel's integrity.

c. Other principal's or counsel's good faith.

d. Past sins of omission and commission.

3. Mediator's role.

a. Listen.

b. Express understanding.

c. Expect emotion at every session.

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d. Let parties air out, then

(1) Deflect anger.

t2) Encourage civilized dialogue.

(3) Move to private caucus.

(4) Point out more progress if parties focus energies onfinding solution.

(5) Ask other party to state its understanding of basisfor angry party's emotion.

E Which party speaks first?

I . Usually claimant or claimant's counsel speaks first.

2. But defendant may request to speak first.

3. May be the party who last proposed a resolution.

4. Or the party who proposed mediation.

5. May be party selected ad hoc by the mediator based on mediator'sinstincts.

6. Mediator will assure other parties that all will have an opportunityto speak.

F. Usually, counsel opens with a statement of client's position.

I. Counsel should address the other side's represent..ti·es, not themediator.

2. 5-10 minutes; if complex, longer.

3. Typically, more detail or changed position later.

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4, Purpose: to persuade other party of

a, Your bona fides,

b, Strength of your position,

c, Weakness of other party's position,

d, The need to settle; overlap of interests and needs,

e, A rational basis for settlement

n Next, other counsel will state their client's position,

H. Mediator's role,

1, Asks questions to assure mediator and parties understand --

a, Parties' positions,

b, Status of settlement talks,

c, Status of pending or proposed litigation,

d, Interests of others not present

2, Kinds ofquestions --

a, Open-ended,

b, HypotheticaL

c, Seeks help in understanding,

3, Restates a party's position to assure clarity,

4, Asks counsel to restate adversary's position,

5, After hearing parties' pcs;tions stated by counsel, mediator may askeach party to begin to articulate real interests and needs,

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V MEDIATOR'S JOB AT ALL SESSIONS

A. Be patient.

B. Remain neutral.

C. Listen and understand.

D. Facilitate.

1. Communication.

2. Understanding.

E. Always optimistic; never pessimistic.

F. Assure that everyone is heard and understood.

G. Form no judgment; be flexible; beware of unspoken solution that seemsobvious to mediator.

H. Engender trust and confidence.

I. Seek broad views from parties first; details, second.

1. Understand the emotional roller coaster; weather it.

K. After counsel and parties have spoken in each other's presence.

I. Mediator may suggest private caucus, or one party may request aprivate caucus; in either case, mediator checks if OK with otherparty.

OR

2. Mediator stays with joint session and begins to explore

a. What each party needs.

b. What each party expects.

c. What each party sees as a practicable process for achievinga joint solution.

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L. Usually, a mediator's evaluation should be deferred until late in the process,and often, never given at all.

1.\n early evaluation may

a. Illllicale lhal mediator is biased.

b. Harden positions.

2. Mediator's evaluation may be essential to reality testing.

3. Proper timing is vital.

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VI. COUNSEL'S JOB AT ALL SESSIONS

A. Be prepared -- as if final argument.

B. But this is not tInal argument.

C. Counsel's job is to counsel and to help client find a solution; stridentadvocacy usually inappropriate and counter-productive.

I. Understand client's BATNA.

2. Understand client's real interests and needs.

3. Ascertain other side's BATNA and real interests and needs.

D. Beware of Rambo litigator tendencies.

E. Persuade other side's representatives, not the mediator.

F. Persuade other side that --

I. Other side's position, however attractive to other side, is weak.

2. Client's position, however difficult for other side to accept, isstrong.

3. Client's position is direct out-growth of client's real intere: .~ andneeds.

4. Other side's position is not consistent with other side's real interestsand needs.

5. Notwithstanding ditferulces re positions, parties' tco .. ,nterests andneeds may overlap and may suggest a solution.

6. Important to client that both sides' real interests and needs aresatisfied.

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VII PRINCIPAL'S JOB AT ALL SESSIONS

A. Be prepared to participate fully, and increasingly as the mediationproceeds.

B. Be prepared to talk more than your lawyer.

C. Talk with the other party.

D. Be creative.

I. Know your BATNA.

2. Understand thoroughly and describe own interests and needs.

3. Listen and try to understand thoroughly other side's BATNA,interests and needs.

4. Objectively assess value of case to each party.

5. Objectively assess risks of not settling to each party.

6. Avoid ad hominem attacks.

7. Explore ways to share important information with other side -- evenconfidential information.

E. Be prepared to share views -- even highly sensitive and confidentialinformation -- with mediator.

) . Mediator will ask what the party wanted out of the deal now indispute.

2. Mediator will ask what the party's goal is today.

F. Express emotion.

G. But be controlled, be firm, be informed, be objective and be confident.

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VIIL FIRST PRIVATE CAUCUS

A. The party not caucusing.

I. Mediator must reassure.

2. Should have own room.

3. Amenities.

4. Homework -- what mediator will be asking; focus on realinterests/needs of all parties.

B. Caucusing party

L Mediator must reassure party that all aspects of private caucus willremain confidential, unless party expressly authorizes disclosure ofa specific aspect.

a. Mediator will take notes to keep important poihts in mindand to assure confidential information is segregated fromnon-confidential information.

b. At end of private caucus, mediator will double check onwhat mediator can and cannot say to other side.

2. Mediator will gather information.

a. Will start on positive note, viz. what is important tocaucusing party.

b. Full story is not likely to unfold in first caucus; more will berevealed later.

c. ·Mediator will seek the real story.

(I) Party's perceptions.

(2) Party's dislikes.

(3) Party's understanding of the differences separatingthe parties.

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(4) Bases for distrust.

(5) Relevant history.

(6) Party's previously unstated concerns, fears, motives,needs.

3. Mediator will have principals talk.

4. Mediator will encourage the party to focus on its needs.

5. Both counsel and the principal must be prepared to disclose realinterests, real needs, real value of case.

6. Mediator may inquire as to party's further understanding of theother party's real interests, real needs, perceptions, fears, etc.

7. Mediator is likely to --

a. Ask open ended questions.

b. Ask hypothetical questions.

c. Avoid confrontat;on.

d. Eschew reality testing in early caucus.

e. Try to listen with open mind.

f Express no judgment and no recommendations.

g. Wonder whether the mediator's patience will endure.

h. Wonder whether the mediator has the requisite skills toassist the parties.

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8. Before private caucus concludes, mediator will ask party whetherthere is any message the mediator should transmit to the other side.Anything I cannotsay?

a. Mediator will distinguish clearly between wh"t mediator cansay and cannot say on behalf of caucusing party to the otherparty.

b. The mediator can frame hypothetical questions to otherside, e.g. "What if.."; "Have you considered... "; "Would itbe possible to... "; "If we could persuade the other side... "

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IX. FIRST PRIVATE CAUCUS WITH THE OTHER PARTY

A. Same process as in preceding Section VIII.

B. \Iediator is likely to (i.e. should) listen before delivering a message.

I. Before stating first party's offer, and

2. Before asking "what if.. "

3. Let this party tell its story.

C. The mediator should understand the second party's interests and needsbefore revealing anything about first party's caucus.

D. Mediator will begin to isolate real issues in light of unspoken informationfrom first private caucus.

E. The mediator will attempt to find an issue on which to begin to facilitatenegotiation.

F. Is the mediator obligated to deliver the first party's message regardless ofwhat the mediator learns in the second party's private caucus?

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X THE MEDIATOR AND PRIVATE CAUCUSES IN GENERAL

A. The mediator will hear diametrically opposed accounts.

I. Unalterable anger.

2. Eternal dislike.

3. Solidified distrust.

4. The other side's misconduct is the sole cause of the dispute.

5. Hopeless deadlock.

B. The mediator is likely to want to throw in the towel. DON'T!

I. Find one potentially resolvable issue out of the two or three realIssues.

a. Not positions.

2. Explore ways to find common ground on that issue.

a. Brainstorm options.

b. Move outside parameters of dispute as currently framed.

(I) Another relationship?

(2) Goods for money?

(3) Another player?

c. Prioritize.

3. Take it a step at a time.

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XI. DANGER DANGER DANGER I

A. A solution may be immediately and luminously clear to the mediator.

B. The mediator's perceived solution may be objectively sound, allencompassing, profitable to all, efficient, and eminently fair.

C But it is~ unlikely that any party sees it now, or will see it later, as themediator see it!

D. The parties have own agendas: the mediator is not likely to be privy to orto understand all the agendas.

E. The mediator should let the parties explore and propose the solutions!

F. It's their problem; the solution is within their grasp.

G. The solution will be durable if the parties create it and own it.

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XII SUBSEOUENT SESSIONS

A Joint.

I . Joint sessions should be fj'equent; interspersed among pnvatecaucuses.

2 Parties together can sum up.

3. Parties together can reach a common understanding.

4. Parties together can discuss possible solutions.

5. Avoid the negatives associated with,hidden conversations with themediator.

6. Avoid misstatements or misunderstanding when mediator is shuttlediplomacy messenger.

7. Joint caucuses may engender confidence and good will.

a. After abrasive emotions have subsided.

b. But abrasive emotions may never subside, and jointcaucuses may be difiicult.

8. Entirely new perspectives may be difiicult to acknowledge :.~ jointcaucus, but joint exploration of a solution to a relatively easy issuemay be salutary.

9. If the parties can make progress in small steps in joint caucus, thiswill build confidence i:l

a. The parties themselves.

b. The process.

c. The prospects of finding a solution.

B. Private caucuses may continue to be necessary to provide the environmentto get to real interests and real needs.

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C Caucuses on different days.

]. Fatigue is an important factor; parties have to stand back andreflect.

2. Incentive to continue wanes if intense caucusing seems to yield onlynegative results.

3. Homework may be necessary to break a logjam before negotiationsresume.

4. Another party (e.g. insurer) may have to participate.

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XIIL END GAME

A. Breaking an impasse.

I. Reality testing.

a. Mediator may ql.lestion s()undness of positions.

b. Mediator may inquire as to cost oflitigation.

c. Mediator may ask parties to list the real rewards oflitigationv. costs.

d. The mediator may ask a party to tabulate the pros and consof another alternative to potentially available terms andconditions.

e. Mediator may take parties through litigation risk decisiontree.

2. Mediator may explore creating other relationships.

3. Mediator may ask each party what the party would do if it ownedboth sides of this problem.

4. Mediator may explore with one party what that party can give upthat is oflittle value to it but of relatively larger value to the otherside.

5. The mediator may serve as an arbitrator.

a. The mediation may render a binding decision on a finalIssue.

(1) Money.

(2) Design.

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b. The mediator may evaluate each party's chances inlitigation.

(I) Privately.

(2) Jointly.

6. Parties may not be influenced by mediator's judgment because it isdemonstratively correct; rather, because of their confidence in themediator.

7. Mediator may provide short term solution followed by continuedmonitoring.

8. Mediator's expression of an opinion may adversely affect mediator'sability to act as a neutral in the future on the specific matter.

B. Don't Let Parties Leave The Session I

I. Parties can quit any time. It's their process.

2. But it is more difficult for a party to quit forever if the mediator ispresent.

3. Mediator will discourage quitting if progress apparent and end insight.

4. Mediator may let party walkout, and before other party leaves, getthe walking party back in the room.

C It is imperative that the mediator be

I. Eternally optimistic -- milst point frequently to progress.

2. Confident.

3. Experienced.

4. Trusted.

5. An authority figure.

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D. Don't let the parties leave with a handshake; there must be a writtenagreement signed by all concerned.

I. Counsel, not the mediator, should dictate or draft.

2. Will reveal and claritY misunderstandings.

3. Will minimize chances of immediate rekindling of impasse.

4. Counsel and parties execute.

5. Even if only some issues settled; agreement may outline process forresolving future issues.

E. If no agreement is possible.

L Parties should expressly acknowledge no agreement

2. Parties should state why.

3. Parties should acknowledge room for further progress, if any.

4. Parties should explore what to do next

5. Court-annexed mediation.

a. Mediator may give an evaluation.

b. Mediator may suggest that parties report to Court on theirviews of the mediation.

c. Mediator may suggest to the ADR administrator that theCourt's intervention is necessary to break a logjam.

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( XlV. POST-MEDIATION

A. Mediator will destroy documents submitted to mediator, as well asmediator's notes.

B. If the mediator is subpoenaed, or if a party is subpoenaed,

I. Notice must be given to all concerned.

2. Mediator must invoke the privilege.

C. If court-annexed, mediator will report to Court.

I. Bare bones report.

2. May include evaluation.

3. May outline discovery issues to be tried, etc.

D. Mediator should write to parties.

I. Confirming the outcome.

2. Including post-mediation reflections.

3. Expressing thanks.

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